Working Paper: NBER ID: w27352
Authors: Alberto Cavallo
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 10 out of 16 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: No keywords provided
JEL Codes: C43; E21; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-adjusted inflation rate (E31) | Official CPI (C43) |
| Consumer expenditure patterns (D12) | COVID-adjusted inflation rate (E31) |
| Consumer spending towards food (D12) | COVID-adjusted inflation rate (E31) |
| Consumer spending on transportation (R41) | COVID-adjusted inflation rate (E31) |
| Income level (D31) | Inflation rates for low-income households (E31) |
| Income level (D31) | Inflation rates for high-income households (E31) |
| COVID-adjusted inflation rate (E31) | Inflation inequalities based on income (D31) |