China's inflation: why was official database updated with more historical data?

Historically, when it comes to statistics, China's record is not great. It has been criticised for altering statistics, even by internal economists, and there have been reports of cases in which local officials have altered economic figures in the interest of political gains.

So, why has China added almost four years of figures to its producer price index (PPI) database?

In the middle of October, official data released showed China's producer price index (PPI) rose by 10.7 per cent in September from a year earlier as a surge in global coal prices pushed up raw material costs. At the time, this was reported as record-high factory gate inflation for China, increasing the risk of stagflation.

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Stagflation occurs when an economy is hit by slow growth - China's economy expanded by just 4.9 per cent in the third quarter - as well as by high inflation and unemployment.

The reading in September was the highest since the start of the National Bureau of Statistics (NBS) database in October 1996 after the index hit 10.0 in August 2008 and 10.1 the following month.

Then in October, China's PPI, which reflects the prices that factories charge wholesalers for products, rose by 13.5 per cent in October from a year earlier, up from 10.7 per cent in September, the NBS said.

Despite the rise, the reading for October was reported as the highest since July 1995 and not a record.

Around a week later, while releasing its monthly retail sales and industrial production data for October, the statistics agency offered an explanation as an NBS official confirmed to the South China Morning Post that the official database had recently been updated with more historical data.

Data before October 1996 had been unavailable until the update pushed the available records back to January 1993. Given the update, the PPI reading for October was a 26-year high - the highest since June 1995, rather than an all-time high.

The NBS official, who spoke on condition of anonymity, also said: "The change is to promote openness and transparency of statistics," while noting that the PPI statistic was first compiled in 1993.

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"The general trend is like that, as long as the data can be made public, we will add as much as possible," she said, suggesting that the practice was likely to extend to other indicators.

Given the update to the database, China's highest PPI reading occurred as the index hit 26 per cent in May 1993.

From 1993-1995, China's economy overheated due to a rapid increase in infrastructure investment, a property frenzy, aggressive credit expansion and high demand.

At the time, Premier Zhu Rongji - Beijing's economic tsar - severely tightened up monetary and fiscal policies. He also introduced multiple iron-fisted reforms in taxation, state-owned enterprises, property and exchange rates, including the infamous tax-sharing reform in 1994, achieving a "soft landing" from the second half of 1995. This led to China's PPI dropping to 8 per cent at the start of 1996, with the index eventually falling to zero in May 1997.

Additional reporting by Orange Wang

This article originally appeared on the South China Morning Post (SCMP).

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