If the United States sneezes, Australia catches a cold. This was the long-held traditional view that simply pointed out Australia's dependence on the US economy. If the US economy faltered, Australia's economy would follow suit - but with greater pain.
Now global economic power has shifted. Australia's economic dependence is linked to China's growth story. It is often touted that Australia survived the global financial crisis due to the economic power of China.
China is Australia's number one export destination, accounting for a trade share of 23.2 per cent. Earlier this week, China released economic data that pointed to an increase in inflation.
China's inflation, trade, industrial production, retail sales and capital expenditure data for the month of November revealed strong economic conditions, but with signs of modest slowing in some quarters of the economy.
"The Chinese economy continues to grow at a brisk pace, albeit slowing from earlier this year," Morningstar Australasia head of equities strategy Ross Bird says.
However, the data does point to China's growing inflation problem.
Bird notes inflation rose from 4.4 per cent in October to a new high of 5.1 per cent in November, with the food segment the dominant factor, rising 11.5 per cent year on year or 2 per cent for the month.
Inflation will be something investment strategists will be watching closely, as any inflationary 'sneeze' could prompt a cold for Australia.
"China is Australia's major trading partner. And we have reached the point where if China sneezes, then Australia would be at the risk of developing a cold," CommSec chief economist Craig James says.
"Clearly, the Chinese economy remains in strong shape, but the battle over inflation is the main issue to watch."
So, what do higher Chinese consumer prices mean for Australian investors?
Bird says the higher inflation data is causing the Chinese authorities to tighten monetary policy by increasing banks' reserve requirement ratio (RRR). China's central bank recently raised the RRR by 50 basis points, to take effect on 20 December.
"This is the third rise in the RRR this month and the sixth rise this year," Bird says.
"In a sense, this may cause the Chinese economy to slow, causing demand for our raw materials and energy to reduce from previous expectations."
For James, investors are worried about rising inflation in China.
"While the main issue is higher food prices, investors are worried that higher inflation may become entrenched," he says.
Besides inflationary concerns, Treasury Asia Asset Management chief investment officer Peter Sartori highlights that credit growth is also a concern for the Chinese economy.
"Interestingly, we have moved from concerns about a hard landing only 12 months ago in China to concerns now about a potential overheating," Singapore-based Sartori says.
"Rightly so, the market is concerned that credit growth is too strong and could potentially lead to problems down the road."
Importantly, the unchecked credit growth is largely led by the non-banking industry, where the central bank has less control, he says.
For Bird, the major risk is that food inflation persists and ultimately filters through into the prices of other goods and services.
"Food costs make up a much larger percentage of a Chinese family's household expenses than in western economies, so it can impact living standards," he says.
"Will workers demand higher wages to cover the increased cost of food?"
Investment strategists, however, remain confident the Chinese government can grapple with inflation.
While James says there are concerns authorities may make policy mistakes, either by tightening policy too much or not enough, the fact Chinese authorities are determined to restrain inflationary pressures is a positive development.
Sartori is confident the Chinese government can address inflation given its track record.
"Their track record over the past decade in dealing with this issue has been strong, using predominantly administrative measures. These administrative tools will over time be replaced by normal, market-related measures," he says.
Bird is also confident the Chinese government is addressing inflation "to the extent it can domestically".
"The current tightening measures are a responsible reaction to strong economic and inflationary conditions. They will assist in creating a sustainable economic growth path, rather than an overheated speculative situation that could lead to uncertainty and volatility," he says.
Investors have tended to get nervous about China's economic sustainability once or twice a year since 2004, only to see economic growth continue, he says.
"It will be a case of whether the sneeze is just due to an itch or full-blown influenza."
