The latest inflation figure fell short of economist predictions, which had anticipated a 0.48% rise according to a Reuters survey. It also marked a notable decrease from the 1.54% inflation rate recorded in September.

In October, the Reserve Bank revised its inflation outlook for the fiscal year concluding in March 2026, lowering it to 2.6% from a previous forecast of 3.1%. Despite this adjustment, the central bank maintained its key policy rate at 5%.

The reduction in both headline and food inflation last month can primarily be credited to several factors. These include the impact of a reduced Goods and Services Tax (GST), a favorable base effect, and decreased inflation rates for oils and fats, vegetables, fruits, eggs, footwear, cereals and related products, as well as transport and communication costs, as detailed in a recent report.

The decline in headline inflation and food inflation in October is mainly attributed to impact of decline in GST (goods and services tax), favorable base effect and to a drop in inflation of oils and fats, vegetables, fruits, egg, footwear, cereals and products, transport and communication, according to the release.

The effects of the Reserve Bank of India’s outsized 50-basis-point rate cut in June have yet to filter through the economy, Governor Sanjay Malhotra had said then, adding that the decision to hold rates steady was unanimous.

However, the RBI had also hinted that the Indian economy could “see growth decelerate” in the second half of the fiscal year 2026 due to global trade uncertainties.

“Inflation is likely to rise going into the next year and settle at around 4% for fiscal year 2026,” Anubhuti Sahay, head of India economic research at Standard Chartered, told CNBC in a telephone interview. She added that the central bank may choose to save its “ammunition” for cutting interest rates.

“There is no urgency for [a] rate cut in December, when the monetary policy committee meets, as growth is holding up and transmission of earlier rate cuts is still underway,” Sahay said.

In August, the U.S. imposed an additional 25% tariff on Indian imports, raising total duties to as high as 50%, among the steepest imposed by Washington on its trading partners. Textiles, gems and jewelry, and marine products have been hit hardest.

While exports to the U.S. account for around 2% of India’s GDP, these sectors are labor-intensive. Prolonged weakness could lead to job losses and weigh on overall growth.

To cushion the blow, New Delhi reduced the goods and services tax on several items on Sept. 22, to spur domestic demand ahead of a month-long festive season, lowering prices for consumer goods, vehicles, and farm products.

The auto and jewelry sectors have performed well, while the pickup in demand for footwear, paints, fast-moving consumer goods, and textiles has been mixed, Indian brokerage Motilal Oswal said in a research report on Nov 7.