Discussion Of The Compilation And Application Of Different Income Class CPI In China

Consumer price index measures the price changes of goods and services acquired, used or paid by households over time. It is an essential statistical indicator reflecting a country’s or a region’s macroeconomic situations.Objectively, as an average index, the general CPI is difficult to reflect the impact of price changes on the costs of different income classes effectively, which virtually covers the losses suffered by low-income and vulnerable groups in situation of high inflation. Therefore, it is necessary and significant to compile income class price indices to assess the welfare gains and losses in economic development.From2003to2012, price inflation was mainly caused by price increases of food and housing.Since the reform and opening up, people’s living standards constantly improving with the gap of income and consumption widening between different income classes population in urban and rural. Consumption structures of different income classes in urban and rural are also different. This difference between different income classes in urban is particularly evident.Across the world, many countries and regions have tried to compile group price index, such as Hong Kong, Macao, Singapore, Japan and so on. Now, some cities and provinces in China mainland have also tried to compile income class price index, especially the consumer price index for low-income people, for example, Beijing.Using already existing and limited data, we try to calculate different income class price indices of urban and rural households finding that urban CPI better shows the inflation of middle-income households, but greatly underestimate the inflation of low-income households, especially urban needy households. In rural, the situations are similar to urban, but the differences between income class price indices are significantly smaller than those in urban.Using the different income class indices to calculate the impact of price rises on income, we find the lower the income levels of households, the larger proportion of the required income coping with price rises accounted for total increase in income. So, the impact of price rises on low-income households is larger.