National inflation rates are commonly based on the Consumer Price Index (CPI) of the respective country. The CPI is an economic indicator that measures changes over time in the price level of a representative basket of consumer goods and services for a defined population and geographic region. The Chinese Consumer Price Index is calculated by the National Bureau of Statistics of China on a monthly and annual basis. It covers the prices of goods and services of 262 basic divisions grouped into eight categories, which represent the living consumption of urban and rural residents. The eight categories include: food, tobacco, and liquor; clothing; residence; household items and services; healthcare and medical services; recreation, education, culture articles and services; transportation and communication; and other items and services. The index values are calculated by taking price changes of all products in the eight categories and averaging them. The national inflation rate is then calculated by weighting the index values of all eight categories for urban and rural residents.
Over the last two decades, the inflation rate in China ranged at a low and stable level, averaging 2.2 percent annually. This was the lowest level of inflation of all BRIC countries and differed only slightly from the inflation rates of developed countries. However, since accounting methods vary, the low Chinese inflation figures may not adequately display the rise in cost of living felt by many people living in China’s fast-growing cities and urban areas.
When looking at the monthly development of the inflation rate, there was a sudden increase from 2.8 percent in September 2019 to 5.2 percent in February 2020. This escalation was mainly driven by food prices, whereas prices for other categories of goods and services remained stable or decreased. This contrasted with the development of the CPI in the United States and may be related to the outbreak of the swine flu in China in 2019.