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The COVID-19 Inflation Weighting in Israel

Author

Listed:
  • Benchimol Jonathan

    (Bank of Israel, Jerusalem, Israel)

  • Caspi Itamar

    (Bank of Israel, Jerusalem, Israel)

  • Levin Yuval

    (Bank of Israel, Jerusalem, Israel)

Abstract

Significant shifts in the composition of consumer spending as a result of the COVID-19 crisis can complicate the interpretation of official inflation data, which are calculated by the Central Bureau of Statistics (CBS) based on a fixed basket of goods. We focus on Israel as a country that experienced three lockdowns, additional restrictions that significantly changed consumer behavior, and a successful vaccination campaign that has led to the lifting of most of these restrictions. We use credit card spending data to construct a consumption basket of goods representing the composition of household consumption during the COVID-19 period. We use this synthetic COVID-19 basket to calculate the adjusted inflation rate that should prevail during the pandemic period. We find that the differences between COVID-19-adjusted and CBS (unadjusted) inflation measures are transitory. Only the contribution of certain goods and services, particularly housing and transportation, to inflation changed significantly, especially during the first and second lockdowns. Although lockdowns and restrictions in developed countries created a significant bias in inflation weighting, the inflation bias remained unexpectedly small and transitory during the COVID-19 period in Israel.

Suggested Citation

  • Benchimol Jonathan & Caspi Itamar & Levin Yuval, 2022. "The COVID-19 Inflation Weighting in Israel," The Economists' Voice, De Gruyter, vol. 19(1), pages 5-14, June.
    • Handle: RePEc:bpj:evoice:v:19:y:2022:i:1:p:5-14:n:5
    DOI: 10.1515/ev-2021-0023
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    1. Raj Chetty & John N Friedman & Michael Stepner & Opportunity Insights Team & Camille Baker & Harvey Barnhard & Matt Bell & Gregory Bruich & Tina Chelidze & Lucas Chu & Westley Cineus & Sebi Devlin-Fol, 2024. "The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(2), pages 829-889.
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    4. Pascal Seiler, 2020. "Weighting bias and inflation in the time of COVID-19: evidence from Swiss transaction data," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-11, December.
    5. Alberto Cavallo, 2024. "Inflation with Covid Consumption Baskets," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 902-917, June.
    6. Xavier Jaravel & Martin O'Connell, 2020. "High‐Frequency Changes in Shopping Behaviours, Promotions and the Measurement of Inflation: Evidence from the Great Lockdown," Fiscal Studies, John Wiley & Sons, vol. 41(3), pages 733-755, September.
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    Cited by:

    1. Angelini, Elena & Damjanović, Milan & Darracq Pariès, Matthieu & Zimic, Srečko, 2023. "Modelling pandemic risks for policy analysis and forecasting," Economic Modelling, Elsevier, vol. 120(C).
    2. Mr. Francesco Grigoli & Evgenia Pugacheva, 2022. "Updating Inflation Weights in the UK and Germany during COVID-19," IMF Working Papers 2022/204, International Monetary Fund.
    3. Grigoli, Francesco & Pugacheva, Evgenia, 2024. "COVID-19 inflation weights in the UK and Germany," Journal of Macroeconomics, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    consumer expenditures; consumer price inflation; consumer behavior; coronavirus pandemic; vaccination;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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