2020
Working Paper
HBS Working Paper Series

Inflation with COVID Consumption Baskets

Format:Print
| Language:English
| Pages:22

Abstract

The Covid Pandemic led to changes in expenditure patterns that can introduce significant bias in the measurement of Consumer Price Index (CPI) inflation. Using publicly-available data on card transactions, I update the official CPI weights and re-calculate inflation with Covid consumption baskets. I find that the US CPI \emph{underestimated} the Covid inflation rate, as consumers spent relatively more on food with positive inflation, and less on transportation and categories experiencing deflation. The bias peaked in May, when US Covid annual inflation was 0.95\% compared to just 0.13\% in the CPI and low-income households were experiencing nearly twice as much inflation as those at the top of the income distribution. I find similar evidence of higher Covid inflation in 12 of 19 additional countries.

Keywords

COVID; Consumer Expenditures; CPI; Inflation; Health Pandemics; Consumer Behavior; Spending; Inflation and Deflation; Global Range

Citation

Cavallo, Alberto. "Inflation with COVID Consumption Baskets." NBER Working Paper Series, No. 27352, June 2020. (Harvard Business School Working Paper, No. 20-124, May 2020.)