Inflation with Covid Consumption Baskets

Abstract

The COVID-19 Pandemic has led to changes in expenditure patterns that can introduce significant bias in the measurement of Consumer Price Index (CPI) inflation. I use publicly-available data on credit and debit card transactions to update the official CPI weights and re-calculate inflation with COVID consumption baskets. I find that the US CPI underestimated the COVID inflation rate, particularly during the first three months of the Pandemic, as consumers spent relatively more on food and categories with higher inflation, and less on transportation and other categories experiencing deflation. By September, U.S. COVID inflation was 1.90% compared to 1.41% in the official CPI, and was impacting low-income households the most. I also find evidence of higher COVID inflation in 12 out of 19 additional countries.