Recall those days when China was accused of exporting deflation to the rest of the world? The days when dirt cheap "Made in China" products were flooding the rest of the world (they still are).
It was so prevalent that in January 2004, the US Federal Reserve Board published the results of its study entitled, "Is China "Exporting Deflation""? The paper found that China is not. This is because, among other things, US imports from China accounted for roughly 7.8% of total US imports.
But that was using 2001 trade numbers. Fast forward to the present and by 2016, the US Census Bureau had US imports of goods and services from China at 17.1% of total - more than its historical biggest trading partners Canada (14.5%) and Mexico (12.0%).
The Federal Reserve Board was correct (back then), the correlation between US and Chinese inflation was loose at best right through 2006 but have become positively correlated since the years following the GFC. Inflation in the Eurozone showed the same pattern (which now also has China as its biggest source of imports (12%).
Latest inflation data from China indicates that central banks could be in for more head scratching as they try to solve the strengthening growth - easing inflation conundrum ... or call China a deflation exporter once more.
China's CPI inflation increased by 1.5% in the year to June, unchanged from the 1.5% rate recorded in the previous month and well-below the People's Bank of China's target of 3.0%. Month-on-month, consumer prices fell by 0.2% in June following a 0.1% decline in May, marking the fourth monthly decrease in consumer prices in five.
Not only this China's producer price index grew by just 5.5% over the same period -- the same as in May but sharply down from the 7.8% rate recorded in the year to February this year - suggesting easing price pressures in the pipeline.
Easing inflation in China would add to other factors - such as wages and commodity prices -- keeping inflation low in the US and the Eurozone, among others.
We'll soon find out what the Fed makes of all these when Chair Janet Yellen testifies before Senate Banking Committee this Wednesday and before the House Financial Services Committee the following day.
Will Janet still maintain that the recent low inflation outcomes as transitory?