CPPCC members say CPI underestimates inflation
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CPPCC members at China's annual parliamentary gathering have complained that the country's consumer price index (CPI) underestimates the cost of living by excluding key items of household spending.
"The CPI doesn't include spending that's both consumption and investment – for example, buying a house; and spending on education and medical insurance are not in the stats either. But these three items account for more than 60 percent of household expenditure. Excluding them means the CPI doesn't reflect the true state of the economy," said Zhang Jiao, secretary-general of the China Democratic National Construction Association – one of China's minor political parties.
Zhang said the government should replace the CPI with a living price index (LPI), which includes education and housing costs but excludes investment in non-residential property and second homes. He said that using the LPI would improve the government's macroeconomic management.
The Central Committee of the Zhi Gong Dang, another of China's minor parties, said in a statement that "The CPI system needs to be modified to reflect the true economic situation," adding that "If the CPI deviates too far from reality it will have a negative impact on government policy making and economic development."
China's method of calculating the CPI was established in 1992 when housing costs were very low and has not fundamentally changed in the past 18 years.
Some experts say the CPI needs a fundamental overhaul to reflect structural changes in consumption patterns. Others point out that the method of calculating the CPI was directly copied from Western countries and is unlikely to be changed significantly. But Zhang Jiao said that in the West, the CPI fluctuates much less than in China, usually by less than 3 percent compared with 10 percent or more on occasions. "Currently it can't be regarded as a key index of the Chinese economy," he said.
