Mainland China is back to exporting one of its most world-changing products - deflation. The deflationary impact of the country's entry to the World Trade Organisation in 2001 helped put a cap on global wage rises, held consumer prices in check and allowed the "great moderation" of monetary policy that kept global interest rates low in the face of benign inflation. The problem now is that 33 consecutive months of year-on-year declines in the country's producer prices has come as policymakers in the United States, Europe and Japan are desperate for a bit of inflation to help them return super-loose monetary policy settings to normal. "The realisation that China will be exporting more deflation helps to explain why US inflation expectations continue to plunge," Societe Generale strategist Albert Edwards writes in his latest note to clients.
