India’s Inflation Hits a Record Low - But There’s a Twist Hidden in the Base Effect

Despite October’s headline inflation printing at a historic 0.25%—the lowest since India adopted the current CPI series in 2012—economists caution that the dramatic dip isn’t simply a reflection of falling

prices. Instead, a significant part of the decline is explained by an often-overlooked statistical artefact: the base effect, said a report by Forbes India.For the fifth consecutive month, food inflation remained negative. But that doesn’t necessarily mean food prices crashed this year. Rather, it reflects how unusually high food prices last October created a high comparison base—visually pulling down today’s inflation rate.Why a High Base Skewed This Year’s InflationInflation in India is measured on a year-on-year (YoY) basis: current prices compared to the same month last year. This makes the denominator—last year’s price index—crucial in determining the final number.

• A low base makes this year’s inflation look high
• A high base makes this year’s inflation look low

Economists observed the reverse of the pandemic effect.In 2021–22, inflation appeared high because it was rebounding from depressed 2020 prices.In October 2025, inflation appeared low because it was measured against a spike in food prices in October 2024.Dipti Deshpande, Principal Economist, Crisil, estimates that “roughly half of the decline in inflation between September and October can be attributed to the high base.”The remaining decline, she adds, is driven by price momentum shaped by GST rate tweaks, subdued global commodity prices, and a favourable monsoon.Aditi Nayar, Chief Economist, ICRA, echoes this:“The one-off impact of the GST rate rejig and a healthy crop output have sharply softened sequential food price momentum.”Will October 2026 Show a Reverse Effect?Surprisingly, experts don’t expect a low base effect to distort next year’s numbers upward.This October’s record-low inflation means future YoY comparisons will start from a bottomed-out base, which naturally puts upward pressure on inflation prints going forward.But economists say sequential food-price declines from here will be limited.In short:

• The base is now low
• But food prices are unlikely to fall much further
• So inflation won’t artificially spike due to the base effect in October 2026

Should India Update Its CPI Base Year?The base effect is mathematically inevitable, but outdated CPI base years can amplify distortions.India is already moving from the 2011–12 CPI base to a more relevant 2022–23 base, with updated weights and consumption patterns.Dharmakirti Joshi, Chief Economist, Crisil, notes that reducing food’s weight—given its high volatility—“could lend more stability to inflation numbers.”The current CPI series also fails to account for the Centre’s free foodgrain programme, which began during the pandemic and continues till 2028.The upcoming CPI revision is expected to:

• Incorporate free food schemes into price calculations
• Use a single index for items like rice (instead of separate PDS and non-PDS series)
• Include new consumption items based on recent expenditure surveys
• Adopt digital and online marketplace data
• Overhaul the housing index methodology

Nayar stresses that a base-year update is essential to keep CPI aligned with “the underlying consumption pattern of the economy.”India’s remarkably low October inflation is less a sign of dramatic price cooling and more the result of mathematical optics created by last year’s high base.Understanding the base effect is essential—not just for interpreting monthly inflation swings, but for shaping policy decisions in a rapidly evolving economy.