China's demand shocks drive global inflation, impacting prices worldwide.
China's supply and demand shocks have a significant impact on global inflation. Demand shocks have a slightly bigger effect than supply shocks, especially on producer prices. Chinese shocks explain about 5% of international inflation on average. Both direct (import and export prices) and indirect (foreign competition and commodity prices) channels play a role in this impact. Differences in trade and commodity exposure help explain why countries respond differently to Chinese shocks.