Economy

Revised CPI basket shows slight inflation drop

By Hu Yuanyuan (China Daily)
Updated: 2011-02-16 10:24

BEIJING - The National Bureau of Statistics (NBS) reduced the weighting of food by 2.21 percentage points in the revised consumer price index (CPI) basket, a change that is partially responsible for a month-on-month drop in the headline inflation figure released on Tuesday.

China's CPI, the key gauge of inflation, rose 4.9 percent last month from a year earlier, a lower figure than most economists' estimates.

Sheng Laiyun, the bureau's spokesman, said in October that new weightings for CPI would take effect in January. The revised CPI basket reduces the weighting of food by 2.21 percentage points and increases the weighting of residences by 4.22 points to reflect the country's changing economic landscape, according to the NBS statement.

The CPI basket is reviewed every five years on the basis of household surveys. Revisions reflect new spending patterns and economic development, according to the NBS.

The proportion of income Chinese people allocate for food purchases fell to 36.52 percent in 2009, from 39.44 percent in 2000, according to NBS statistics. Meanwhile, housing-related costs surged because of rising home prices. The NBS adjusted the CPI basket to reflect the changes.

The revised CPI weighting will lead to a 0.024 percentage point increase of the index on a year-on-year basis, and a 0.049 percentage point decrease on a monthly basis, the statement said.

"Food will account for around 30 percent after the change," said Ken Peng, China economist at Citi Bank. Food previously accounted for a third of the CPI basket and was the main driver of inflation last year.

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"The effect of the CPI basket reweighting is neutral, and we believe the reduction of food weighting reduced headline inflation by 0.23 percentage points, more than offset by the effect of increases in the weighting of non-food items (0.26 points)," Peng said.

"We'll reassess our inflation projection according to the new weighting proportions, pending more detailed data, in particular, those of non-food prices," said Cui Li, chief China economist of Royal Bank of Scotland. "Given the relatively modest weighting adjustments, we do not expect a substantial change from our earlier forecast that CPI inflation will peak in the first quarter and become moderate afterwards."

The move is also part of the NBS's efforts to make the statistic calculation more accurate, the bureau said.

Ma Jiantang, head of the NBS, said in September that China will revise the housing sales price statistics system in 2011, after having solicited opinions via the Internet since early 2010.

The plan suggested that the bureau would make better use of data from market watchers, instead of basing calculations on housing developers' data.