Analyzing China's Consumer Price Index Comparatively with that of United States

TL;DR

This paper analyzes and compares the dynamic structures and predictability of China's CPI with the US CPI, demonstrating similar modeling capabilities and highlighting the effectiveness of the diffusion index approach for China.

Contribution

It introduces a comprehensive comparison of China's CPI dynamics with the US and evaluates modeling approaches, including S-ARIMAX and diffusion index methods.

Findings

Both CPI series are well modeled by S-ARIMAX with covariates.

China's CPI shows stable annual cycles and Spring Festival effects.

Diffusion index approach improves predictions for China's CPI.

Abstract

This paper provides a thorough analysis on the dynamic structures and predictability of China's Consumer Price Index (CPI-CN), with a comparison to those of the United States. Despite the differences in the two leading economies, both series can be well modeled by a class of Seasonal Autoregressive Integrated Moving Average Model with Covariates (S-ARIMAX). The CPI-CN series possess regular patterns of dynamics with stable annual cycles and strong Spring Festival effects, with fitting and forecasting errors largely comparable to their US counterparts. Finally, for the CPI-CN, the diffusion index (DI) approach offers improved predictions than the S-ARIMAX models.