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Inflation with Covid Consumption Baskets

Alberto Cavallo

NBER Working Paper No. 27352
Issued in June 2020, Revised in July 2020
NBER Program(s):International Finance and Macroeconomics, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w27352

 
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