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    Inflation with COVID Consumption Baskets
    02 Jul 2020Working Paper Summaries

    Inflation with COVID Consumption Baskets

    by Alberto Cavallo
    Examining the impact that changes in expenditure patterns are having on the measurement of consumer price indices (CPI) inflation in 17 countries, this study finds that the cost of living for the average consumer is higher than estimated by the official CPI. This implies that real consumption is falling more quickly over time.
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    Author 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: May 2020
    • HBS Working Paper Number: HBS Working Paper #20-124
    • Faculty Unit(s): Business, Government and International Economy
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    Alberto F. Cavallo
    Alberto F. Cavallo
    Edgerley Family Associate Professor of Business Administration
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