Chinese inflation: China has changed the way it calculates inflation, but hasn’t fixed the problem. Consumer prices show no signs of easing. Although the main CPI inflation measure rose a less-than-expected 4.9 per cent in the year to January, that means inflation is as bad as last year, even after a surprise rate hike at the end of December. A five-yearly reshuffle of the CPI basket hasn't made things any less worrying.
The January numbers showed inflation is becoming persistent. Month on month, prices rose one per cent, which equals some 13 per cent on an annualised basis. Things could moderate in the second half, since there were some tough comparisons — food prices were lower in the first half of 2010. But structural inflationary factors, such as higher wages, will keep pushing costs such as clothing and services up. The new basket gives more weight to housing, one of the main drivers of inflation. Housing's share of the CPI basket is now 19 per cent compared with 15 per cent before, and housing-related costs rose 7 per cent year-on-year. Food, the other main driver, gets a lesser weighting. While prices of fruits and eggs rose 35 per cent and 20 per cent respectively in the year ending Jan. 31, food’s share of the basket fell from 33 per cent to 31 per cent.
That is a start, but it is not enough. Housing accounts for a much higher 40 per cent of the basket of prices in the United States, and 30 per cent in Hong Kong. Another problem is that China only counts rental costs, not the costs of home ownership such as mortgages. With home ownership in China a rather high 70 per cent, one can argue that housing is a cost, not just an investment. Meanwhile, food looks too high a share of the basket. India and South Korea each allocates a share just half as big as China's.
That leaves the five-year tweak looking like a missed opportunity to reflect better the things that really bother Chinese consumers.
Switching the basket added just 0.024 percentage points to January’s reading, the Statistics Bureau maintains. China makes smaller adjustments to the basket every year, so there is still a chance to make more alterations. If a number is going to be useful, it might as well be realistic.
