When I looked into CPI is China, I found it tricky in several aspects.
1. Weight of Items in the fixed basket is not transparent.
People estimate from published monthly that weight of items might be
- Food 30.5%
- Tobacco, Liquor and Articles 3%
- Clothing 8.5%
- Household Facilities, Articles and Services 5.5%
- Health Care and Personal Articles 7.5%
- Transportation and Communication 12.3%
- Recreation, Education and Culture Articles 12.3%
- Residence 20%
Compare with US CPI weight, Food is the biggest components in CPI, while residence is relatively small. In US, Food takes around 15%, and residence around 40%. Basically it reflects reality in China. Normal people is not rich, so lots of expenditure are needed for foods. And most of people are living in rural areas so that they can enjoy low cost of residence. That's why high price of commercial residence property is not reflected in CPI yet. With the development of Chinese economy, CPI weight in China is expected to be close to that in US.
2. CPI is not taken serious in China
CPI is supposed to be an important indicator to reflect real interest, but in China few people cares about CPI because of
- Method to calculate CPI is not transparent. Weight, data collection and etc. Nothing is revealed on website
- Data manipulation by National Bureau of Statistics in China. Some National Bureau of Statistics in China is the tool of government to achieve some kind of target.
Currently, increment of CPI in China is around 5%. Government expect to lower CPI through policies. To be peculiar, the government set price ceiling to control price. It is totally against mechanism of market. The following situation is expected to be seen
- Short supply of goods. Shortage of power supply this year is due to that.
- Unreasonable distribution of resource/profit among industries.
In the end, I just hope government could be wiser and follow the rules in economics.
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