Abstract: Abstract： The utility function of town inhabitant is simulated, though cointegration and error correction model based on disposable income, expenditure, and CPI for recent twenty years; the variationof town inhabitant’s welfare level is measured, by the equivalent variation & compensating variation and variation of consumer’s surplus, when the rising of CPI and the increasing of disposable income. Not only the welfare of town inhabitant is quantified, but also some important conclusions is found: even though the rising of CPI only reduces town inhabitant’s welfare, the increasing of disposable income still improves town inhabitant’s welfare. In conclusion, the welfare of town inhabitantin 2007 is better than in 2006.

Key words: rising of CPI, cointegration, disposable income, simulation of utility function