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Inflation with Covid Consumption Baskets

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  • Alberto Cavallo

    (Harvard Business School & NBER)

Abstract

The Covid-19 Pandemic led to changes in expenditure patterns that introduced significant bias in the measurement of Consumer Price Index (CPI) inflation. Using publicly available data on card transactions, I updated the official CPI weights and re-calculated inflation with Covid consumption baskets during 2020. I show that the US CPI underestimated the Covid inflation rate, as consumers spent relatively more on food with positive inflation, and less on transportation and categories experiencing deflation. The bias peaked in May, when US Covid annual inflation was 1.02% compared to just 0.13% in the CPI and low-income households were experiencing nearly twice as much inflation as those at the top of the income distribution. I found similar evidence of higher Covid inflation in 14 of 19 additional countries.

Suggested Citation

  • Alberto Cavallo, 2024. "Inflation with Covid Consumption Baskets," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 902-917, June.
    • Handle: RePEc:pal:imfecr:v:72:y:2024:i:2:d:10.1057_s41308-023-00213-y
    DOI: 10.1057/s41308-023-00213-y
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    More about this item

    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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