(China Daily)
Updated: 2007-08-28 07:14

The reality of people's daily lives should be respected in calculating the consumer price index (CPI), says an article in Yanzhao Metropolis Daily. The following is an excerpt:

Beijing's municipal bureau of statistics on Saturday released a detailed explanation of how the CPI is calculated. It said investigators surveyed the prices of 200 kinds of commodities. The prices of pork and eggs are surveyed once every five days, while those of other commodities are surveyed every 10. As to why housing prices are not included in the calculation of the CPI, statistics officials said housing prices are in the investment category, which is in line with international statistical practices.

The CPI has become a sensitive thing as commodities prices have risen. It is of course a good thing that the statistics bureau explained how it calculates the CPI. This helps satisfy citizens' right to know and will ease public concern.

But the explanation of why the CPI does not include housing prices fell a little short of the mark. It is true that housing prices are not factored into the calculation of the CPI under international practices. But as housing prices are so closely connected to people's daily lives, we should not stick so fast to such international practices.

In countries with well-developed market economies and stable social structures, housing prices are not included in the calculation of the CPI not only because housing prices belong to the category of investment, but also because housing transactions mainly involve existing housing instead of new construction. Under such circumstances, it is appropriate to factor rent into the CPI.

But in China, where large numbers of rural people are moving to cities, housing is mainly for residential purposes. To own one's own home in a city is a key threshold for people hoping to join urban society. Against such a background, there is a special relation between housing prices and people's livelihoods. Housing prices are a big issue that the CPI cannot dodge.

What is more, China's real estate market is unique for other reasons. For example, the international ratio of rent to the sales price is normally 1:200, but in many large Chinese cities the ratio is 1:300 or less. And the real estate industry is rife with profiteering. More and more people have become housing slaves. The international practice of not including housing prices in the CPI is not practical here.

A careful look at the CPI systems of various countries shows that construction and the weighting of the CPI's components reflect reality as people live it. They are also suited to different modes of consumption. For example, in the United States, food and beverages are weighted less than transportation. This arrangement should not simply be copied by other countries or used as an international practice.

Therefore, the practice of calculating the CPI should be based on the principle of accurately reflecting people's actual modes of consumption.

The statistics department should listen to the public's voice and change the system. The calculation should include all prices that concern the public interest so that the CPI reflects reality and provides a reference for policymakers.

(China Daily 08/28/2007 page10)