Establishment And Application Of China’s Layered Consumer Price Index

In recent years, China’s economy develops quickly. The fluctuation of the price index has greatly affected the citizens. Meanwhile, the resident’s income gap is rather large and the consumption levels are diversified in China. The income inequality leads to the consumption unfairness, which results in the inequality of consumer price index (CPI). In view of the above analysis, some deficiencies in the present CPI system can be found. The theoretical and practical fields have made abundant researches on issues such as the measure and correction of inflation index. The thesis tries to improve the CPI by means of stratified correction, so as to ensure the equality of consumer price. Stratified CPI can not only ensure the accuracy of price index in measuring the living cost of people from different income groups, but also provide some reference for the civic and monetary policy making. The thesis can be divided into 8 parts.Chapter one introduces the background and significance of the research, so as to clarify the purpose and significance of correcting the stratified CPI. After reviewing the available literature, based on the income-consumption theory, the thesis defines the research direction of stratified CPI by following the route from consumption inequality to CPI unfairness and analyzing the current research situation of both theory and practice. Finally, the thesis puts forward the research framework and approach, and generalizes the innovative points.Chapter two mainly introduces the history, formation, coverage and economic significance of CPI. Based on the above analysis, the thesis points out the deficiencies of the current CPI, and demonstrates the necessity and the possible application of composing stratified CPI. This chapter forms a solid basis for the formation of stratified CPI in the next chapter and provides a research perspective.Chapter three respectively introduces the stratified CPI of some developed countries and regions such as USA, India, Hong Kong, Zhejiang Province, Jiangsu Province and Beijing, and makes comments on them and summarizes the relevant experience. Based on the above analysis, the thesis studies the formation of the stratified CPI in China, and puts forward three principles. Firstly, the stratified CPI of the city and countryside should be formed respectively as consumption inequality exists both in cities and countryside. Secondly, poverty differs from low income and they should be treated differently in the stratification by clarifying the definitions of poverty and low income. Finally, the determination of the weight of the stratified CPI in China should adjust to the change of the consumption structure so as to measure the variation of prices more accurately.Chapter four defines the poverty level in cities and countryside respectively through the application of extended linear expenditure system model (ELES). The hierarchical fashion of stratified consumer price index of China’s urban and rural residents has been fixed as:low-income in urban residents accounted for 20%(of which the urban poor households accounted for 10%, urban households with middle-income accounted for 60%, high-income urban residents accounted for 20%); rural low-income residents (poor households) accounting for 40%; accounted for 40% of middle-income residents, high-income rural residents accounted for 20%. based on the basis of available information, the article complied from 2003 to 2014 monthly and annual stratified consumer price index of the urban residents and rural residents, and make a preliminary statistical analysis of data:The thesis finds that the lower the residents’income is, the higher pressure of inflation they will face. Besides, the gap will become larger when the inflation rate is high, which means inflation will intensify consumption inequality. Therefore, the disadvantaged group needs much more support and assistance in inflation.Chapter five studies the poverty policy in China under the framework of stratified CPI. Compared with the poverty level established by the government, the poverty level set in this thesis covers such aspects as clothing, housing, appliance, transportation, communication, entertainment and health care besides the living needs, From this it can be found that the ELES poverty level under the stratified CPI is more rational. This chapter makes a deep research on three issues. Firstly, it makes a comparative analysis on the poverty incidence under the framework of the stratified CPI. Secondly, it makes a comparison and adjustment under the stratified CPI. Finally, it dwells on the significance of stratified consumption in fighting against poverty. Three conclusions are drawn in this thesis:the poverty incidence issued by the government is underestimated; the poverty line adjusted under the guidance of stratified CPI is more reasonable than that adjusted by the use of traditional CPI; the elimination of poverty from the perspective of stratified consumption can begin with narrowing the income gap.Chapter six explores the livelihood policies in China under the framework of stratified CPI. Various livelihood policies can be adopted such as launching the price subsidy mechanism, granting food subsidy, launching free compulsory education, adopting cooperative medical service, providing direct subsidy to planting grain and housing allowance, as well as offering the price subsidy to refined oil product. The social welfare will be reduced in inflation. But proper livelihood policies can compensate for the loss caused by inflation. To find the most effective livelihood policies for a certain group in inflation, the thesis makes a quantitative analysis on the CPI of residents with different income, so as to determine the major contribution factor and difference between residents. The following conclusions can be reached. For urban residents, food subsidy is preferable and other livelihood policies such as affordable housing construction and housing subsidy are also very effective. For rural residents, these livelihood policies such as the deepening of the new rural cooperative medical system, promoting the combination of medical care and education, strengthening the free compulsory education and maintaining education equality are more effective.Chapter seven studies the monetary policy in China under the framework of stratified CPI. This chapter defines and studies monetary policy and its purpose. As the primary goal of monetary policy is to maintain the price stability, the monetary policy should mainly focus on the low-income group who are sensitive to food price. For the sake of being cautious, as there is a time lag between the implementation and its effect, concentration on some food price index which fluctuate a lot may momently affect the monetary policy, which will be unfavorable for the stability of the price in the long run. Through the analysis on the fluctuation structure of CPI in China, it can be seen that the fluctuation of food price is the long-term driving force for fluctuation of the CPI in both cities and countryside. The thesis concludes that the monetary policy which focuses on the fluctuation of food price and the CPI of the disadvantaged group should not be a short-term policy, because the food price index with a high short-term fluctuation rate will have a long influence on the overall trend of CPI. While improving the operational efficiency of monetary policy, much more attention should be paid to the disadvantaged group and the equality of monetary policy.Based on the foregoing theoretical analysis and empirical research findings, the paper summarizes and prospects in the last chapter.