Using Food Prices and Consumption to Examine Chinese Cost of Living

Abstract

This paper considers two approaches to examining potential bias in China's CPI: (i) inferring true changes in cost of living from consumer behavior; and (ii) creating alternative price indices to compare with official indices. For (i), our semi-parametric estimates agree with the recent finding of a large understatement in increases to the true cost of living. For (ii), we focus on food prices and explore potential causes of bias. We find some evidence of a new good bias. China's large-scale migration also causes changes in the cost of living that are not reflected in CPI.

Keywords: China, Cost of living, Food prices, CPI bias

JEL Classification: E31, E20, O10