New Delhi

The retail inflation excluding gold is expected to remain negative over the next two months, according to a report by SBI Research, highlighting an unusually low-inflation environment in India.

India's CPI inflation moderated to an all-time low of 0.25 per cent year-on-year in October this year, largely driven by declining prices in food and beverages.

Vegetables, pulses, and spices continued to fall, while fruit and oil & fat inflation also moderated. Gold prices, however, drove up personal care and effects inflation to 57.8 per cent; excluding gold, headline CPI turned negative at -0.57 per cent yoy.

Core CPI remained largely steady at 4.33 per cent in October compared to 4.36 per cent in September, but Core CPI excluding gold came down to 2.6 per cent.

SBI Research noted that the recent GST rationalisation further helped reduce inflation. While earlier estimates suggested a 65-75 bps moderation, the actual reduction has been around 85 bps.

State-wise, inflation patterns remain uneven. Kerala recorded the highest inflation at 8.56 per cent, followed by Jammu & Kashmir at 2.95 per cent and Karnataka at 2.34 per cent. Out of 22 states, 12 are reporting negative inflation, with all others below 3 per cent, except Kerala.

The low inflation trajectory, coupled with Q2 FY26 GDP growth exceeding 7 per cent, presents a complex challenge for the RBI in its upcoming December policy.

The report highlighted that maintaining a balance between supporting growth and controlling inflation will test the central bank's tactical flexibility.

Upcoming data, including November and December inflation prints, Q3 GDP, and new CPI and GDP series, will further influence policy decisions, the report added.

The report further emphasised that the RBI's October decision to maintain status quo has narrowed its room for maneuver, and any future rate action, including a potential December cut, will require careful communication given strong growth and low inflation.

The report expect that liquidity management and calibrated credit supply will be key to ensuring smooth transmission as credit demand is set to outpace deposit growth.

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With CPI expected to remain subdued for most of FY27, the central bank faces a "double whammy" of low inflation and high growth, creating a delicate policy balancing act in the months ahead.