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The National Bureau of Statistics (NBS) said in Beijing on May 12 that China's price index had risen 1.2 percent in the first four months of the year.

However, many people believe it's underestimated given that the prices of many products are rising steadily. Are the CPI figures accurate?

Delicate psychological factors

Mr. Zhang is complaining that charges for water, power and natural gas have kept going up in recent years. A few days ago he spent some 2,000 yuan (about US$249) on a 29-inch color television set which may have cost him over 10,000 yuan (about US$1247) eight or nine years ago.

The prices of commodities in daily use have risen one after another in recent years. And their slight fluctuations can cause a stir among consumers. At the same time, due to technological advances the prices of household appliances, telecom equipment and clothing are continuously being slashed, which allows people to enjoy a higher standard of living. But strangely these price cuts don't hold the attraction they used to as they're now considered natural and therefore easy to ignore.

Actually it's a common psychological phenomenon, according to a relevant expert. People are more likely to remember when the price of something goes up but can't recall things falling in price.

House prices not reflected in CPI

Steadily rising house prices is of interest to urban residents nationwide. However, few people realize that house prices are not calculated into CPI.

As experts in the field point out apartments are usually purchased as an investment. Many people buy to rent them out or, after a period of time, to sell on. An apartment's depreciable life could run for hundreds of years while the installment payment method lasts dozens of years. The periods of time involved are much longer than common durable products. An apartment is regarded as an asset and used in many investment mixes.

Therefore home-buying is categorized as an investment – not consumption – and accordingly doesn't appear on the CPI listing.

But the fluctuation of house rents, the cost of water, power and fuel, lending rates, house maintenance expenses, construction and material investment can indirectly influence consumer prices.

Complaining that house prices are rising too sharply is reasonable but questioning the accuracy of CPI statistics is groundless.

CPI is not everything

Crude oil costs are rising as is that of iron ore, and various company shares. These price changes influence CPI in some ways but they're not calculated directly into CPI. This misunderstanding is somehow rooted in people's knowledge of the system.

The consumer price index only reflects the fluctuations of some products and services.

Currently, price investigations in China focus on over 700 commodities and services. They can be divided into eight categories which include food, tobacco and wine, clothing, home appliances, medicare and personal commodities, transportation and communication, entertainment and education and housing. Nearly 120,000 urban and rural households nationwide are selected as the sample group to contribute information to a model of habit and consumption statistics.

Investigations are conducted by the National Bureau of Statistics at over 50,000 sites in over 500 cities and counties. Over 3,000 full-time price supervisors collect information at markets and shops of various kinds. The commodities which are closely connected to people's daily lives and experience frequent price fluctuations will be surveyed every five days so the CPI can reflect changes in the market in timely and accurate fashion. 

The benchmark of CPI is decided according to the consumption composition of the surveyed 120,000 households. With a general improvement in living standards, consumption trends are also changing. Therefore the CPI benchmark requires a small adjustment each year and more significant adjustment every five years.

(China.org.cn by Tang Fuchun, June 13, 2006)