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.

Highlights

  • The COVID-19 pandemic led many countries to implement lockdowns, resulting in a worldwide economic crisis

  • Their results are driven by the relative increase in consumption of food and non-alcoholic beverages, which are more inflationary than other spending categories

  • These results show that the substitution bias is large but was almost identical in 2018, 2019 and 2020, and they suggest that changes in shopping behaviour, as reflected in changing UPC expenditure share, during the pandemic do not account for the inflationary spike during lockdown

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Summary

Introduction

The COVID-19 pandemic led many countries to implement lockdowns, resulting in a worldwide economic crisis. Their results are driven by the relative increase in consumption of food and non-alcoholic beverages, which are more inflationary than other spending categories While these papers focus on expenditure switching patterns across broad sectors, we study the same substitution bias channel within the fastmoving consumer goods sector, using a real-time scanner data set where prices and quantities are precisely measured.. We show that expenditure switching across retailers (for the same barcodes) played a small role in driving aggregate inflation; there was some substitution towards more expensive convenience stores, the extent of the switching and the price differential compared with other stores are too small to contribute to a large increase in measured inflation These new facts can help explain why the changes in expenditure patterns observed during lockdown – in particular, the large rise in online purchases – do not affect inflation measurement substantially in practice. Real-time scanner data can be used to monitor changes in market concentration going forward

Method
Price index
Substitution bias during the lockdown
18 Dec-17 Jan
Mechanisms
Expenditure switching across shopping formats
Expenditure switching across retailer types
The role of quantity and price promotions
Heterogeneity by income group
Findings
Conclusion
Full Text
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