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BIZCHINA / Weekly Roundup
Time to restructure the CPI
By Yi Xianrong (China Daily)
Updated: 2007-08-10 13:22
The author Yi Xianrong is a researcher with the Institute of Finance and
Banking at the Chinese Academy of Social Sciences
Recent figures released by the National Bureau of Statistics show the
country's consumer price index (CPI) rose 3.2 percent in the first half
of the year, and increased 4.4 percent in June.
Hikes to food prices largely powered the bulging CPI, while prices of
manufactured goods and services remained stable.
In view of this, no overall price rises are expected if everything is
handled properly. However, if the food price increases fail to be brought
under control and are compounded by quickly rising real estate prices,
the CPI could go up sharply.
Some, following the lines of developed nations' practice, argue that the
CPI is staying basically stable, judging from the core CPI, which
excludes food and energy costs.
Related readings:
?Analysts say CPI may hit 5 percent
?Economists: 4% CPI rise still healthy
?Central bank warns of inflation risks
?Asset prices may keep rising in 2nd half
?Lending in decline on tightened control
?Central bank vows to prevent overheating
People of this school of thought ignore the fact that there is a wide gap
between the Chinese CPI system and that of developed market economies. It
has no real meaning that they gauge the Chinese reality with experiences
gained in the developed world.
The Chinese CPI consists of eight primary components covering food,
clothing, home facilities and services, healthcare, transportation,
communications, entertainment and?education, as well as?housing.
The weight of food accounts for 34 percent of the CPI, while
entertainment, education and stationary account for 14 percent, housing
13 percent, transportation and communications 10 percent, healthcare 10
percent, clothing 9 percent, home facilities and their maintenance 6
percent and wine, cigarettes and daily-use articles 4 percent.
The US CPI system, however, is weighted differently. Housing, for
example, accounts for 42.1 percent, food and drinks 15.4 per cent,
transportation 16.9 percent, medicare 6.1 percent, clothing 4 percent,
entertainment 5.8 percent, education 5.9 percent and other commodities
and services 3.8 percent.
Apart from the different weight of CPI components, the definition and
revision of the weights of commodities and services in the Chinese CPI
are not conducted in a transparent way. In contrast, the weights of
commodities and services in the US CPI, are defined on the basis of
surveys on the spending of millions of households over the last couple of
years. Moreover, these weights are revised every other year so that they
keep up with changes in consumer tastes and preferences.
In China, the system of drawing up the CPI was introduced as early as the
1950s during the planned-economy era. As a result, the data and
experience gained during this period are largely disconnected from those
gained after the late 1970s when the country embarked on the road of
reform and opening up.
(For more biz stories, please visit Industry Updates)
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