When the cost of vegetables, cooking oil, milk, or transport goes down, household budgets breathe easier. This indirectly helps the wider economy because families are more likely to spend on other goods and services –– Siddharth Roy
India's retail inflation has dropped to 0.25 per cent, the lowest level ever recorded since the consumer price index began in its current form. This figure has surprised many and sparked discussions about what it means for households, businesses, and policymakers. A fall of this scale is not an everyday event. It marks a moment of relief for consumers, but it also raises important questions for the broader economy.
The biggest factor behind this fall is the sharp drop in food prices. Vegetables, cereals, and several essential items have become cheaper compared to last year. Families across the country are feeling this directly in their daily expenses. When food inflation falls so sharply, overall inflation naturally moves down because food items make up a big part of household budgets. Added to this is the effect of recent tax changes on several goods, which have helped reduce prices. There is also the base effect at work, meaning inflation looks low today because prices were unusually high during the same period last year.
For consumers, this is welcome news. Essentials becoming more affordable gives people room to spend on other needs. In a country where millions still struggle with rising costs, even small price corrections make a difference. When the cost of vegetables, cooking oil, milk, or transport goes down, household budgets breathe easier. This indirectly helps the wider economy because families are more likely to spend on other goods and services.
For the Reserve Bank of India, the low inflation figure opens up new possibilities. With inflation well below its comfort range, the central bank may consider reducing interest rates in the coming months to support growth. Lower rates can encourage businesses to invest, help consumers borrow at cheaper rates, and boost overall economic activity. But any decision will still need careful consideration because a sudden spike in prices can overturn this situation quickly.
However, this sharp dip in inflation has another side that cannot be ignored. Very low inflation, if it continues, can also point to weak demand. If people are spending less or if businesses are not able to raise prices due to slow demand, it may signal underlying weaknesses in the economy. Companies may delay investments if they feel buyers are holding back. Consumers too may postpone purchases if they expect prices to fall further. This can create a cycle that slows growth.
There is also the possibility that the current fall is temporary. If food prices rise again due to weather changes, supply disruptions, or seasonal patterns, inflation could climb back within a few months. Prices of fuel and global commodities can also add pressure. In that case, today's low inflation may simply be a short-lived phase. Policymakers therefore need to stay alert rather than assume that the problem of high inflation has disappeared for good.
Another point to watch is core inflation, which excludes food and fuel. In recent months, core inflation has not fallen as sharply as headline inflation. This means the underlying demand in the economy is steady but not strong enough to push growth on its own. If core inflation remains sticky, it may limit how far the central bank can reduce rates. A balance must be maintained between keeping inflation and supporting growth.
So what should be the next steps? First, the government and the RBI must treat this period as an opportunity to push reforms that improve long-term stability. Interest rates can be adjusted gradually to support investment, but not so sharply that they create future inflation risks. Monetary policy must remain steady and predictable.
Second, the fall in food prices must be handled with care. While low prices help consumers, extremely low prices can hurt farmers and rural incomes. The government should strengthen support for farmers through better storage, supply chain upgrades, crop planning, and targeted procurement. Stable food prices should not come at the cost of farmers' earnings.
Third, public spending must move towards areas that improve productivity, such as infrastructure, skills, technology, and rural development. When inflation is low, investment in these areas becomes even more important to stimulate demand and create jobs. Stronger rural demand can help balance any weakness in urban consumption.
Fourth, welfare programmes can benefit from this moment. When inflation is low, the impact of government support, whether food subsidies, cash transfers, or health schemes, becomes stronger. This is the right time to strengthen social protection systems and ensure that vulnerable households have a secure safety net.
Finally, both the government and the central bank must closely monitor future trends. Inflation can turn quickly if global prices rise or if domestic supply chains face shocks. A careful watch on consumer demand, industrial activity, and food supply conditions will be essential.
India's record low inflation is a significant milestone. It brings relief at a time when the global economy is dealing with multiple uncertainties. But it is not a signal to relax. Low inflation is helpful only when supported by strong demand, stable income, and steady growth. It must be used as a chance to strengthen the economy, not as a reason to sit back.
If managed wisely, this moment can help India build a more resilient economic foundation. It can encourage investments, support households, and give the government room to focus on long-term reforms. Inflation may be at a historic low today, but the real test lies in how the country uses this stability to build a stronger future.
(The author can be reached at siddharth001.roy@gmail.com.)