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High‐Frequency Changes in Shopping Behaviours, Promotions and the Measurement of Inflation: Evidence from the Great Lockdown

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  • Xavier Jaravel
  • Martin O'Connell

Abstract

We use real‐time scanner data in Great Britain during the COVID‐19 pandemic to investigate the drivers of the inflationary spike at the beginning of lockdown and to quantify the impact of high‐frequency changes in shopping behaviours and promotions on inflation measurement. Although changes in product‐level expenditure shares were unusually high during lockdown, we find that the induced bias in price indices that do not account for expenditure switching is not larger than in prior years. We also document substantial consumer switching towards online shopping and across retailers, but show this was not a key driver of the inflationary spike. In contrast, a reduction in price and quantity promotions was key to driving higher inflation, and lower use of promotions by low‐income consumers explains why they experienced moderately lower inflation. Overall, changes in shopping behaviours played only a minor role in driving higher inflation during lockdown; higher prices were the main cause, in particular through a reduced frequency of promotions.

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  • 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.
    • Handle: RePEc:wly:fistud:v:41:y:2020:i:3:p:733-755
    DOI: 10.1111/1475-5890.12241
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    References listed on IDEAS

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    1. Kaplan, Greg & Schulhofer-Wohl, Sam, 2017. "Inflation at the household level," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 19-38.
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    6. Xavier Jaravel & Martin O'Connell, 2020. "Inflation spike and falling product variety during the Great Lockdown," IFS Working Papers W20/17, Institute for Fiscal Studies.
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    11. Jaravel, Xavier & O'Connell, Martin, 2020. "Real-time price indices: Inflation spike and falling product variety during the Great Lockdown," Journal of Public Economics, Elsevier, vol. 191(C).
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    Cited by:

    1. Hindriks, Jean & Madio, Leonardo & Serse, Valerio, 2022. "How do retailers compete on price promotions? Evidence from a temporary promotion ban in Belgium," LIDAM Discussion Papers CORE 2022005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Chowdhury, Aftab & Dixon, Huw David, 2023. "Measuring inflation during the Pandemic with the benefit of hindsight," Cardiff Economics Working Papers E2023/17, Cardiff University, Cardiff Business School, Economics Section.
    3. John Gathergood & Fabian Gunzinger & Benedict Guttman-Kenney & Edika Quispe-Torreblanca & Neil Stewart, 2020. "Levelling Down and the COVID-19 Lockdowns: Uneven Regional Recovery in UK Consumer Spending," Papers 2012.09336, arXiv.org, revised Dec 2020.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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