How does inflation relate to people’s subjective well-being (SWB)? The answer to this question is important to inform policies aimed at enhancing citizens’ well-being. A number of studies found that aggregate inflation rates have a consistent negative impact on SWB. However, people’s perceptions of inflation, which ultimately affect SWB, do not always match aggregate inflation statistics. This thesis contains three studies in the context of China that advance previous understanding of the inflation-SWB association.
Firstly, I propose a new concept of reference-dependent inflation evaluation within a changing economic growth context. My findings suggest that an unstable inflation environment harms people’s SWB. Additionally, a high GDP growth rate mitigates the negative impact of inflation on SWB.
Secondly, I investigate the impact of commodity-specific inflation rates on individual SWB. To this end, I create a unique dataset by matching household expenditure data with consumer price indices. I find that the inflation of different commodities impacts SWB differently. Specifically, the inflation of advanced-need commodities leads to better SWB, as it reflects quality improvements.
Finally, to explore the impact of people’s inflation concerns on SWB, I develop a novel measure of inflation based on the Baidu Search Volume Index. I find that people’s unexpected concerns about inflation are significantly and negatively associated with SWB. Moreover, my results suggest that the non-working older population with low income is the most vulnerable when facing high inflation, and that middle-aged and elderly people are more concerned about medicine prices than food prices.