COVID-19 inflation weights in the UK and Germany
Francesco Grigoli () and
Evgenia Pugacheva
Journal of Macroeconomics, 2024, vol. 79, issue C
Abstract:
The COVID-19 pandemic altered consumption patterns significantly in a short period of time. However, official inflation statistics take time to reflect changes in the weights of the CPI consumption basket. Using credit card data for the UK and Germany, we document how consumption patterns changed and quantify the resulting inflation bias. We find that consumers experienced a higher level of inflation at the beginning of the pandemic than what a fixed-weight inflation (or the official-weight) index suggests and lower inflation thereafter. We also show that weights can differ among age groups and in-person vs. online spenders. These differences affect the purchasing power of the population heterogeneously. We conclude that CPI inflation indexes based on frequently updated weights can provide useful inputs to assess changes in the cost of living, including across segments of the population. If shifts in consumption patterns prove persistent, these indexes can help determine the need to introduce new weights and inform monetary policy and the design of support policies for the more vulnerable.
Keywords: Consumer behavior; Consumer price index; COVID-19; Inflation; Weights (search for similar items in EconPapers)
JEL-codes: C43 E21 E31 L81 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:79:y:2024:i:c:s0164070423000435
DOI: 10.1016/j.jmacro.2023.103543
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