The consumer price index is a measure of inflation. It measures the change of the price of goods month-by-month across the different regions of China.
Observers widely believe that price indices in China understate the true level of inflation. A large part of this discrepancy results from China’s changing economic structure over the past thirty years.
CPI data in China is calculated based on a ‘basket’ of consumer goods as in other countries. However, unlike other countries, the exact weighting of the basket is a jealously guarded secret. It is safe to say though that the general make-up has failed to keep track of real lifestyles in China’s modern economy and is still largely based around typical household expenditures circa 1979.
It assumes that housing is largely a social good, provided by the State or the work-unit; basic food stuffs like vegetables and meat constitute the bulk of wage expenditures and underestimates the extent people eat out or purchase processed foods; it underestimates the proportion of income spent on transport and travel costs; and the price of education and health care.
In total therefore it presents a picture of overall price rises that only obliquely reflects the life most people live in the economically most important regions of the country. That said, the CPI does an indication of general prices movement direction and gives some indication of regional differences. It is important to remember though, that CPI data tends to significantly underestimate inflation in more-developed regions, making comparisons between eastern and western regions problematic.