Inflation Eases Across India, but These States Are Still Feeling the Heat
India's retail inflation has eased significantly, reaching a 99-month low of 1.5% in September 2025. This decline, driven primarily by falling food and fuel prices, has brought the overall inflation rate below the Reserve Bank of India's (RBI) tolerance band of 2%-6% for the first time since 2019. The moderation in inflation gives the RBI more flexibility to maintain a soft monetary policy to support economic growth. The Monetary Policy Committee (MPC) had revised its forecast for India's inflation in 2025-26 to 2.6 per cent from 3.1 per cent in August.
Despite this broad trend of easing inflation, some states are still experiencing higher price pressures. In the first half of FY26, nine states recorded inflation rates higher than the national average. These states face unique challenges and localized factors that contribute to the elevated cost of living for their residents.
Kerala has been particularly affected, with its inflation surge driven primarily by soaring gold prices. The state's high inflation rate, topping the list in June 2025 at 6.71%, is also fueled by rising costs in essential items like food, transport and services. Supply chain disruptions and seasonal price peaks continue to challenge affordability for local consumers, making life more expensive. In the first half of the fiscal year, personal care and effects recorded an inflation rate of 31.8%.
Jammu & Kashmir and Punjab are also experiencing elevated inflation due to rising costs in the fuel and light categories. In these regions, the fuel and light categories pushed inflation higher, averaging 10.5% and 13.3%, respectively. Additionally, in Jammu & Kashmir, transport and weather challenges increase the cost of bringing in goods, resulting in higher prices for food and daily essentials, especially in rural and remote areas.
Other states that have recorded faster inflation than the national average include Lakshadweep, Goa, Uttarakhand and Haryana. In the first quarter of the fiscal year, states such as Maharashtra, Chhattisgarh, Himachal Pradesh and Tamil Nadu also experienced inflation rates exceeding the national average.
Several factors contribute to these regional disparities in inflation. Supply-side constraints, such as floods in Uttarakhand, can disrupt the availability of goods and services, leading to higher prices. Increased power tariffs in Punjab have also contributed to the state's higher inflation rate. Moreover, variations in local demand, transportation costs, and the relative importance of different commodities in state-level consumption baskets can all play a role.
Even with the overall easing of inflation, core inflation, which excludes food, beverages, fuel, and light, remains a concern. In September 2025, core inflation rose to 4.6%. The persistence of core inflation above 4% for eight consecutive months signals that underlying price pressures still exist.
Looking ahead, experts anticipate that headline inflation is likely to undershoot the RBI's projections for the third quarter of FY26. However, analysts expect inflation to stabilize around 3–4% by March 2026, provided no global supply shock occurs. The RBI's future policy decisions will likely depend on a continued moderation of both headline and core inflation, as well as the absence of unforeseen economic disruptions.
