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A recent survey by the People's Bank of China (PBC) indicates that urban residents are less satisfied with the current price level and gloomy about the future price trends.
Put more simply, people are worrying about price hikes.
The public anxiety, nevertheless, is in stark contrast to the sort of apprehension the country's top statisticians are predicting.
The National Bureau of Statistics (NBS) announced on Tuesday that the rise of the country's consumer price index (CPI) slowed from 1.8 percent in July to a mere 1.3 percent last month, the lowest since September 2003. That means the consumer price level is seemingly on track to fall, exerting deflationary pressure on the national economy.
As a key measure of inflation, the CPI has long been issued to help policy-makers as well as the public to obtain a concise grasp of the country's price reality.
Theoretically, such a facts-based index should reflect, if not determine, consumer sentiment.
However, the contradicting concerns expressed between the urban residents in the central bank's questionnaire and the statistical authorities demonstrate the growing discrepancy between the public's understanding of the price reality and top statisticians' judgment.
Why? The reason is not hard to spot. First, it is the statistical authorities' insistence on so-called "international practice" when deciding the "basket of goods" for compiling the price index.
One of the most conspicuous changes in Chinese people's consumption patterns is the nationwide fever to buy homes.
Unlike the cheap-credit-boosted property boom in many developed economies in recent years, the desire sweeping the nation to become a home-owner has largely resulted from the phase-out of its decades-old welfare housing system. It seems that consumers have realized that no longer will there be free housing for them once they step into the job market. Consequently, millions of youths and their families must reduce their spending to prepare for this new reality.
Yet, statistical officials have argued that property purchasing is a more indicative investment in developed countries than in developing countries and thus should not be included when calculating the consumer price index for China.
That may be true for many American homeowners who can easily convert rising house values into cash by refinancing their mortgages. But it is hardly the case for most Chinese first-time house buyers.
Just out of the era of welfare housing, people have to adapt to the idea of renting a house for life, as many do in rich nations. Therefore, buying a house has become a higher priority on many Chinese families' shopping lists. To exclude housing prices as a factor affecting people's consumption makes little sense, at least, in today's China.
Another element that seriously undermines the effectiveness of the current CPI in explaining the country's economic reality is energy prices, particularly the price of gasoline.
When cars were once queuing in vain at empty pumps in some cities, what use is a regulated gasoline price? A low price without the supplies to back it is not a credible market signal to direct consumers' behavior.
As international oil prices hit record highs, the public are naturally preparing for further hikes in domestic oil prices. And the country's surging automobile consumption suggests that increased oil prices will weigh more heavily on the average consumption pattern.
So the statistical authorities should look closer at these important aspects of consumption when calculating CPI.
If the current CPI cannot be promptly adjusted, an alternative index should be developed to reflect the price reality more accurately.
Otherwise, a CPI that fails to represent reality will not only compromise the credit of statisticians but also mislead decision-makers.
(China Daily September 16, 2005)
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