The Nexus Of Price And The Inequality Of Urban Consumption In China: 1993-2004

Based on purchasing power parity theory, this article studied the relative price of eacharea in China and its influence on the inequality of consumption of urban residents. Using theprices of the main goods and services which urban people consumed and their proportion ofconsumption of the residents from each area in China, we calculated the relative price andfound it diverged greatly which was dominantly determined by food price and the foodconsumption structure of consumers from each area.Compared to nominal consumption, great change took place while we adjusted thenominal consumption by PPP approach to get the real consumption of each area. Evidenceshowed that price has reduced the consumption inequality among different areas to someextent. With the components of each group increasing, difference of bad index between realconsumption and nominal consumption became less and less. During the inflation period of1993—2004, price increased its contribution rate to Gini coefficient and bad index. Middlepart and Western part showed excellent quality of "convergence club ", which was intensifiedby eliminating the relative price based on PPP theory and the character of Western part ismuch more significant especially after relative price eliminated. The auto-regression of thestandard deviation revealed, considering the relative price nearly slowed down 2 percent ofthe growth of the inequality of the consumption of urban residents of our country, so we canby both approaches of relative price and consumption to reduce the inequality of consumptionof urban residents in China.