Written by Udit MisraNew Delhi | October 3, 2025 08:44 AM IST 3 min readShoppers crowd Bhuleshwar market in Mumbai to buy colorful traditional outfits ahead of the Navratri. (Express photo by Akash Patil)Since August 2023, retail inflation in India has witnessed a sharp deceleration from being close to 7% to being around or below 2% in August this year. That means the rate at which the general price level was rising has come down.In July 2023, for instance, consumer facing prices went up 7.4% over their level in July 2022. However, this rate of increase (called inflation) has subdued sharply since then, and prices in August 2025 went up by just 2% over where they were in August 2024. The slide in inflation has been sharpest since October last year.It is this deceleration in inflation rate that has made it possible for the Reserve Bank of India, which is tasked with the job to maintain price stability in the country, to start cutting interest rates. Central banks raise interest rates to curtail the demand for money and, through that route, contain high inflation.The RBI’s latest surveys show that falling inflation rate has also had a salutary effect on consumer confidence across India. That’s because lower inflation means better purchasing power in the hands of consumers.The chart alongside shows how the RBI’s consumer confidence indices for rural and urban consumers behaved since September 2023.Consumer confidence is on the rise.To arrive at the consumer confidence index, the RBI seeks responses on a whole host of variables such as the general economic situation, income levels, spending levels, employment situation and the price level for the current period (as compared with one year ago).It is important to note that the level of 100 marks the point of difference between negative and positive sentiments. The area shaded green is positive and the red-shaded area is negative sentiment territory. A value below 100 means that among the people surveyed by the RBI, more were pessimistic about the current state of affairs than optimistic.Story continues below this adLast Week | On the weakness of the RupeeThree things stand out.One, consumer confidence has improved across the country over the past few months.Two, the rural consumer confidence index has now been in the positive territory (above 100) since March. In fact, it is now at the highest point since the RBI started the survey for rural consumers two years ago.Three, despite an uptick, the urban consumer sentiment tells a different story. For one, it continues to languish in the negative territory. It is important to note that the last time when the urban consumer confidence was in the positive territory was way back in March 2019, just as the country was about to go into the General Election. In fact, the urban consumer confidence is still below where it was in March last year, in spite of the softening of inflation.Udit Misra is Senior Associate Editor. Follow him on Twitter @ieuditmisra ... Read More© The Indian Express Pvt Ltd