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 inflation. I use data collected from credit and debit transactions in the US to update the official basket weights and estimate the impact on the Consumer Price Index (CPI). I find that the Covid inflation rate is higher than the official CPI in the US, for both headline and core indices. I also find similar results with Covid baskets in 12 out of 17 additional countries. The difference is significant and growing over time, as social-distancing rules and behaviors are making consumers spend relatively more on food and other categories with rising inflation, and relatively less on transportation and other categories experiencing significant deflation.

Keywords: COVID; consumer expenditures; CPI; inflation;

Language: English

Format: Print

27 pages

Read Now

Citation:

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

Supplemental Information

In early 2020, a coronavirus pandemic swept the globe, ushering in unprecedented disruptions to the global economy. Both supply and demand were decimated by lockdowns and border closings, as well as reduced spending by fearful consumers. In response, governments around the world made equally unprecedented policy moves, spending trillions of dollars on fiscal stimulus measures to bridge the gap during the self-imposed shutdown. As the pandemic progressed, governments had to weigh the costs between loss of life due to opening up their economies and the economic devastation caused by delaying a reopening.

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.

Faculty & Research

Inflation with Covid Consumption Baskets

Abstract

Citation:

Supplemental Information

About the Author

More from the Author