COVID-19 and the CPI: Is Inflation Underestimated?

Volume/Issue: Volume 2020 Issue 224

Publication date: November 2020

ISBN: 9781513560281

$18.00

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Topics covered in this book

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Inflation , Economics- Macroeconomics , inflation measurement , Consumer Price Index , CPI , WP , CPI weight , base period , CPI compiler , budget share , CPI database , expenditure pattern , items CPI , COVID-19 , Consumer price indexes , Inflation , Transportation , Housing , Southern Europe

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Summary

COVID-19 changed consumers’ spending patterns, making the CPI weights suddenly obsolete. In most regions, adjusting the CPI weights to account for the changes in spending patterns increases the estimate of inflation over the early months of the pandemic. Under-weighting of rising food prices and over-weighting of falling transport prices are the main causes of the underestimation of inflation. Updated CPI weights should be developed as soon as is feasible, but flux in spending patterns during the pandemic complicates the development as quickly as 2021 of weights that represent post-pandemic spending patterns.