Using Food Prices and Consumption to Examine Chinese Cost of Living

Abstract

Several recent studies have found that Chinese CPI understates changes in the cost of living. This finding is surprising because common CPI biases cause CPI to overstate changes in cost of living. Using data on average prices, this paper explores whether a type of new-good bias could be responsible for the bias in Chinese CPI. We do not find evidence of a new-good bias, and political tampering appears to be the most likely cause of this bias. China's large-scale migration may also cause changes in the cost of living that are not reflected in CPI.