Move along, there is nothing to see here. That sums up the Federal Reserve’s continuing view as the US central bank stays the course with its ultra-accommodative monetary policy and continues to characterise rising inflation in the United States as transitory. Markets are less relaxed, but perhaps the Fed will get a helping hand from China. Data released last week showed the headline US consumer price index (CPI) rose 4.2 per cent in April year on year, its largest jump since September 2008. That gain reflected the fact US economic activity was in a coronavirus-related slump 12 months ago. Even so, it was still eye-catching, especially when looked at in combination with April’s month-on-month headline CPI rise of 0.8 per cent. That in itself was the largest increase since June 2009. The spike in China’s factory gate prices in April should not be ignored, either. Some in Washington might wish it to be otherwise, but the US continues to have an appetite for goods that are made in China. That being the case, if China’s producer price index (PPI) moves higher, that should feed through into higher US inflation eventually. America’s continuing appetite for Chinese goods is evident in data from California’s Port of Long Beach, a key entry point for imports from China. “An ongoing cargo boom largely driven by online purchases lifted the Port of Long Beach to its strongest April on record,” a news release from the port stated on May 12, with a rise in imports one of the key drivers. Meanwhile, in China, PPI surged 6.8 per cent in April on a year-on-year basis, the National Bureau of Statistics said last week. That was above the consensus 6.5 per cent forecast of a Reuters poll of analysts and substantially higher than March’s 4.4 per cent rise. Taken at face value, these numbers do not look good for those who wish to underplay the risks that US inflation will become sticky . Many investors will undoubtedly continue to have reservations about the Fed’s continued adherence to the idea that current inflationary pressures are transitory. However, the US central bank’s equanimity might not just be a matter of blind faith. Much of the explanation for where we are with higher inflation in both China and the US can be found in the broader economic impact of the Covid-19 pandemic . With Covid-19 initially observed in China, the Chinese economy was hit first as Beijing took strict measures to limit the virus’ spread. China’s success in that regard subsequently meant its economy was the first to start recovering from the health emergency, assisted by policy support from the central government and the People’s Bank of China. Given the size of the Chinese economy , that recovery helped start a bounce in commodity prices amid a resurgence in China’s requirements for energy and other raw materials. Global prices of natural gas, oil, copper , iron ore , tin and even timber have risen, and those higher input prices have fed into the PPI rise in China. Upwards pressures on input prices have increased further as Western economies, led by the US, have begun reopening after lockdowns and vaccine roll-outs have slowed the spread of the virus in some countries. No one should assume that Covid-19 is beaten, though. Again, that analysis does not necessarily support the Fed’s view that US inflationary pressures are transitory, but there is an argument that Chinese PPI might be on the cusp of peaking. If so, given China’s economic heft, some of the inflationary heat building in other major economies could dissipate. In a recent blog post from French bank Societe Generale, analysts Wei Yao and Michelle Lam noted that “China’s total social financing (TSF) and money data again came in vastly below [the] market’s low expectations in April. “TSF growth slowed by 0.5 per cent to 11.7 per cent year on year, a 12-month low and nearly 2 percentage points below the cyclical peak back in October 2020.” With China’s economy recovering, Beijing is scaling back policy support rolled out during the pandemic. The blog post argued that China’s credit data points “to a peak of PPI soon and a clear downtrend afterwards” and that “a quickly falling credit impulse in China has never been kind to industrial metal prices, among other inflation-sensitive assets”. If this proves to be the case, it should also be felt elsewhere. The Fed might find it gets a helping hand from decisions made in China. Neal Kimberley is a commentator on macroeconomics and financial markets