The dynamics within India's economic landscape are showcasing a unique contrast: while food prices are on the rise, core inflation is experiencing a decline primarily influenced by China's export-induced deflation, spreading to international markets.

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In an interview with CNBC-TV18, Jahangir Aziz, global head of emerging markets economics at JPMorgan said there is a possibility of deflation persisting in China for the next three-four months.

This explains that the current trend of deflation, or a general decrease in prices, is expected to continue in China for the upcoming 3-4 months, which means that the prices of goods and services in China are projected to remain on a declining trajectory over this specified time frame.

Deflation can have significant economic implications, including reduced consumer spending and potentially slower economic growth, as consumers and businesses delay purchases in anticipation of lower prices in the future.

Talking about inflation, Aziz said the noticeable increase in agricultural prices warrants attention (in India), yet it's crucial to consider both the headline and core inflation figures.

While the headline inflation might have been unexpected, core inflation has, in fact, experienced a minor decrease from 5.4 percent to 5.2 percent. The impact of China's export-driven deflation is contributing to maintaining a stable disinflationary trend in global goods markets, including India.

What is disinflation?

Disinflation refers to a reduction in the pace of inflation, indicating a slowing in the rate at which the overall price level of goods and services within a country's gross domestic product changes over a period of time.

What is deflation?

Deflation occurs when the overall prices of goods and services in a nation experience a decline, in contrast to inflation where prices increase.

Therefore, the impact of China's export deflation is extending to India, resulting in a moderation of core inflation. Core inflation refers to the price changes of goods and services excluding the volatile food and energy sectors.

The deflationary pressure stemming from China's export-led economy is exerting a downward influence on core inflation within India. This is effectively translating into a scenario where the prices of non-food and non-energy goods and services in India are experiencing a slowdown.

Speaking exclusively to CNBC-TV18, Vetri Subramaniam, chief investment officer (CIO) of UTI AMC said that in the international markets, a key aspect that warrants focus is that, while the United States has indeed presented unexpected economic vigour, China is emerging as a notably notable area of concern currently.

“China is proving to be a significant pain point, not just in terms of growth but also in terms of the fact that it is now starting to export deflation. Not a bad thing, given that everybody is concerned about inflation, but it has longer-term ramifications.”

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