Inflation with COVID Consumption Baskets

22 Pages Posted: 9 Jun 2020 Last revised: 11 Dec 2020

See all articles by Alberto Cavallo

Alberto Cavallo

Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: October 31, 2020

Abstract

The COVID-19 Pandemic has led to changes in expenditure patterns that can introduce significant bias in the measurement of Consumer Price Index (CPI) inflation. I use publicly-available data on credit and debit card transactions to update the official CPI weights and re-calculate inflation with COVID consumption baskets. I find that the US CPI underestimated the COVID inflation rate, particularly during the first three months of the Pandemic, as consumers spent relatively more on food and categories with higher inflation, and less on transportation and other categories experiencing deflation. By September, U.S. COVID inflation was 1.90% compared to 1.41% in the official CPI, and was impacting low-income households the most. I also find evidence of higher COVID inflation in 12 out of 19 additional countries.

Keywords: COVID, Consumer Expenditures, CPI, Inflation, Health Pandemics, Consumer Behavior, Spending, Inflation and Deflation, Global Range

JEL Classification: C43, E21, E31

Suggested Citation

Cavallo, Alberto, Inflation with COVID Consumption Baskets (October 31, 2020). Harvard Business School BGIE Unit Working Paper No. 20-124, Available at SSRN: https://ssrn.com/abstract=3622512 or http://dx.doi.org/10.2139/ssrn.3622512

Alberto Cavallo (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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