Gold Rate in India Frenzy: How Gold Fever Is Fuelling India's Core Inflation?

Gold rates in India have surged over 60% since the beginning of 2025, and this rally is now influencing the country's core inflation. While consumer price index (CPI) inflation eased to 1.54% in September, overall inflation could not remain insulated from one of the biggest gold price rallies in decades. The sharp rise in gold prices has notably impacted core inflation, reflecting its growing influence on the broader economy.

India's CPI inflation, which is also known as retail inflation, stood at 2.07% in August, and eased to a seven-year low of 1.54%. Negative food inflation contributed in bringing the inflation further down.

Gold Price Rally And Impact On Core Inflation

Core inflation, which excludes volatile components like food and energy increased to 4.5% in September. One of the major drivers of the core inflation was gold price rally. Core inflation, excluding gold pan tobacco and gol, is much lower at 3.1%, noted Bank of Baroda (BoB) in its report. "Thus, volatility of international gold price (8.9% & 36.3%, MoM & YoY, respectively) has contributed to some stickiness of core inflation. Core services inflation is also lower at 3.4%," as per the report.

As per JM Financial report, gold price rally contributed nearly 30% in the fresh uptick in core inflation in September.

Silver Price Impact on Core Inflation

Silver prices have a relatively lesser impact on India's core inflation. . "Unlike gold, lower weightage of silver in the CPI basket led to negligible impact on inflation," noted JM Financial in its report.

India's Rising Core Inflation: What About Other Components?

Other than gold, prices of other components in core inflation also saw some decline. For instance, inflation of household goods and services and clothing and footwear declined. Health inflation also remained in line with expectations, as per BoB report.

"Only for clothing & footwear some front loading of festival demand was seen in the sequential data. For housing, some momentum was seen for house rent, garage rent component," as per the report.

Gold Price Fuelling India's Core Inflation: Should We Exclude Gold From Inflation Calculation?

"We are an importing country, so major commodities are imported through various channels. Our fiscal deficit is significantly impacted by gold, crude, and now silver, since we are importing silver at a large scale," explained Manav Modi, commodity analyst at Motilal Oswal Financial Services Limited.

"If we exclude these commodities from the fiscal deficit, the number would be much lower. So, just because gold prices have rallied significantly in the past few months, excluding it from the calculation is akin to saying 'remove crude from the fiscal deficit and it will decrease.' After two months, if prices fall, you would include gold prices in inflation again," he added.