Inflation: China Is Killing It

What have we learned about inflation over the past year? One of the main reasons that the US doesn't need to have a recession to bring down inflation is that China is having the recession for us. China's property bubble has burst, and the deflationary consequences are far greater and more global than those following the bursting of similar bubbles in Japan during the late 1980s and in the US during the Great Financial Crisis of 2008. Consider the following:

(1) The US PPI finished goods inflation rate is highly correlated with the China PPI and the US import price index for goods from China (chart). All three are deflating on a y/y basis.