Inflation with Covid Consumption Baskets

Alberto  Cavallo

Working Paper | HBS Working Paper Series | 2020

Inflation with Covid Consumption Baskets

Abstract

The Covid-19 Pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of CPI inflation. I use data collected from credit and debit transactions in the US to update the official basket weights. I find that the Covid inflation rate is higher for both headline and core CPIs, particularly for low-income households. I find similar results in 12 of 17 additional countries. The difference is growing over time as consumers spend relatively more on food and categories with rising inflation, and relatively less on transportation and categories experiencing significant deflation.

Keywords: COVID; consumer expenditures; CPI; inflation; Health Pandemics; Consumer Behavior; Spending; Inflation and Deflation; Global Range;

Language: English

Format: Print

27 pages

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Citation:

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

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Case | HBS Case Collection | May 2020 (Revised June 2020)

The Coronavirus (COVID-19) Pandemic and the Global Economy (A)

Alberto Cavallo and Christian Godwin

In April 2020, the world struggled to contain the exponential escalation of the coronavirus (COVID-19) pandemic. Dozens of countries had imposed restrictions on travel, work, and social gatherings. A large share of the global population was under lockdowns and unprecedented supply and demand disruptions crippled the economy. In response, central banks announced massive lending programs to avoid a financial meltdown, and governments were launching unprecedented fiscal packages designed to contain the collapse. In a matter of weeks, the pandemic turned into one of the worst global economic crises since the Great Depression. As governments struggled to make policy decisions, uncertainty and tensions were rising. How to balance the public health and economic concerns? What would be the economic and political consequences of the policy response? Was this the end of globalization, or the beginning of a new era of international cooperation? The only certainty was that some of the hardest choices still lay ahead.

Keywords: Demand and Consumers; Supply and Industry; Finance; Central Banking; Financial Markets; International Finance; Globalization; Government and Politics; Health Pandemics; Decision Making; Macroeconomics; Employment; Crisis Management; Supply Chain; Risk and Uncertainty; Air Transportation Industry; Banking Industry; Consumer Products Industry; Employment Industry; Financial Services Industry; Food and Beverage Industry; Health Industry; Medical Devices and Supplies Industry; Pharmaceutical Industry; Public Administration Industry; Retail Industry; Service Industry; Shipping Industry; Tourism Industry; Travel Industry; Asia; China; Europe; Latin America; Africa; United States;

Citation:

Cavallo, Alberto, and Christian Godwin. "The Coronavirus (COVID-19) Pandemic and the Global Economy (A)." Harvard Business School Case 720-031, May 2020. (Revised June 2020.) View Details

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The HBS COVID-19 Global Policy Tracker is an initiative by the Business, Government and the International Economy (BGIE) unit at Harvard Business School (HBS) to collect and standardize economic policies implemented as a response to the coronavirus pandemic around the world. We focus on fiscal policy, monetary policy, and lockdowns and quantify government responses in common variables, units, and currencies to facilitate cross-country comparisons. The database is updated in real time with the efforts of several dozens of students at HBS and other Harvard schools.

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Inflation with Covid Consumption Baskets

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