The decline in Consumer Price Index (CPI), or retail inflation, due to the government’s massive GST rate rationalisation has been relatively modest so far, according to estimates by SBI Research. The report states that the impact of GST rationalisation on inflation during the September–November 2025 period has been around 25 basis points (bps), significantly lower than earlier expectations.
GST Rationalisation: Lower Impact Than Expected
GST rationalisation has indeed contributed to a reduction in CPI inflation in India, but the extent of the impact appears more measured when analysed item by item. SBI Research had earlier estimated that the cumulative impact of GST changes on CPI inflation could be as high as 85 basis points. However, the latest assessment paints a more conservative picture.
“However, item-by-item calculation now shows that the decline in CPI inflation due to GST has been around 25 basis points so far in the Sep-Nov’25 period,” the SBI Research report read.
The report further highlighted that the current estimate may not fully capture the broader effects of GST rate cuts, particularly in the context of online retail. According to SBI Research, discounts offered during e-commerce sales could amplify the impact of GST reductions on consumer prices.
“We believe that this impact does not account for the discounts on e-commerce sales, which could be higher because of GST reduction. We believe that total reduction in CPI owing to GST could be 35 bps (basis points) in 2025-26,” the report read.
State-Level Inflation Trends Tell a Mixed Story
At the state level, inflation trends remain uneven. In November 2025, Kerala recorded an inflation rate of 8.27 per cent, with rural inflation standing at 9.34 per cent and urban inflation at 6.33 per cent. SBI Research attributed this sharp rise largely to increased prices of gold, silver, and oil and fats—commodities that have relatively high consumption in the state.
Inflation Outlook and RBI Policy View
Looking ahead, inflationary pressures are expected to build further across India due to the continued depreciation of the rupee, which could push up import costs and feed into retail prices. Despite these concerns, SBI Research does not anticipate any immediate shift in the Reserve Bank of India’s policy stance.
The report forecasts CPI inflation at 1.8 per cent for 2025–26 and 3.4 per cent for 2026–27, while noting that there is unlikely to be any change in RBI’s position on current interest rates, at least until the February monetary policy review.
According to the SBI report, India’s CPI inflation trend has already shown signs of reversal. CPI inflation rose marginally to 0.71 per cent in November 2025, compared to 0.25 per cent in October 2025, and is expected to climb further to 2.7 per cent by March 2026.
(This article has been syndicated from ANI)
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