Could GST Cuts Reduce CPI Inflation by 35 bps This Fiscal?
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Synopsis
Discover how recent GST cuts could significantly impact CPI inflation rates, potentially reducing them by up to 35 basis points this fiscal year. With insights from SBI, learn how food inflation trends and RBI projections are shaping the economic landscape.
Key Takeaways
- GST cuts may lower CPI inflation by up to 35 basis points.
- SBI's inflation forecasts show significant revisions for FY26 and FY27.
- Food inflation remains low due to various agricultural factors.
- The RBI's repo rate is expected to remain lower for an extended period.
- Gold inflation continues to be a significant concern.
New Delhi, Dec 13 (NationPress) A recent report indicates that the reduction in goods and services tax (GST) is anticipated to decrease consumer price index (CPI) inflation by approximately 25 basis points during the September–November 2025 timeframe, with a potential reduction of 35 basis points for this fiscal year (FY26).
The analysis provided by the State Bank of India (SBI) suggests that inflation forecasts for Q1 FY27 have been adjusted down by about 100 basis points, bringing the estimate to 3.9 percent from an earlier 4.9 percent. The Q3 FY26 projection was also revised, decreasing to 3.8 percent from an initial estimate of 0.6 percent.
Thanks to persistent lower food inflation, driven by a strong kharif production, robust rabi sowing, sufficient reservoir levels, and favorable soil moisture conditions, SBI predicts inflation rates for FY26 to be at 1.8 percent and FY27 at 3.4 percent.
The Reserve Bank of India (RBI) revised its FY26 inflation forecast in its December policy to 2 percent, down from earlier estimates of 2.6 percent in October and 4.2 percent in February.
The report noted that the RBI remains open to future rate adjustments, although it expects the repo rate of 5.25 percent to remain lower for an extended period.
In a notable shift, the CPI inflation trend increased slightly to 0.71 percent in November, up from 0.25 percent in October, primarily due to a slower decline in food and beverage prices combined with increased fuel and light inflation at 2.32 percent.
While prices for miscellaneous items fell in November, costs for personal care and effects rose, attributed to higher gold prices.
The latest inflation data presents mixed trends, with occasional rural food deflation easing and urban food inflation climbing, influenced by cereals, milk products, non-alcoholic beverages, prepared meals, and snacks. However, this data varies on a monthly basis, according to the report.
Gold inflation remains elevated at 58 percent, while the headline CPI, excluding gold, registered a negative -0.12 percent year-on-year.
Point of View
I believe that the anticipated reductions in CPI inflation due to GST cuts represent a significant development for the economy. The report from SBI provides a comprehensive analysis that underscores the importance of maintaining low inflation rates, particularly in the context of food prices, which directly affect consumers. It is crucial that we stay informed about these trends and their implications on our daily lives.
NationPress
13/12/2025
Frequently Asked Questions
What is CPI inflation?
CPI inflation measures the change in prices of a basket of goods and services over time, reflecting the cost of living.
How will GST cuts affect consumers?
GST cuts are expected to lower inflation, which may result in reduced prices for goods and services, benefiting consumers.
What are basis points?
Basis points are a unit of measure used in finance to describe the percentage change in value or interest rates, where 100 basis points equal 1 percentage point.
Why is the RBI's inflation projection important?
The RBI's inflation projection guides monetary policy and interest rate decisions, impacting economic stability and growth.
What factors influence food inflation?
Food inflation is influenced by factors such as production levels, supply chain efficiency, weather conditions, and consumer demand.
