China has experienced remarkably stable growth and inflation in recent years according to
official statistics. We construct alternative estimates using detailed information on Chinese
household purchasing patterns. As households become richer, a smaller fraction of total expenditures
are spent on necessities such as grain and a larger fraction on luxuries such as eating
out. We use systematic discrepancies between cross-sectional and time-series Engel curves to
construct alternative estimates of Chinese growth and inflation. Our estimates suggest that offi-
cial statistics present a smoothed version of reality. Official inflation rose in the 2000’s, but our
estimates indicate that true inflation was still higher and consumption growth was overstated
over this period. In contrast, inflation was overstated and growth understated during the lowinflation
1990’s. Similar patterns emerge from the data whether we base our estimates on major
categories such as food or clothing as a fraction of total expenditures or subcategories such as
grain as a fraction of food expenditures or garments as a fraction of clothing expenditures.