Could COVID-19 Infect the Consumer Prices Index?

The spread of COVID-19 has led to sweeping changes in the way households work, spend their time and shop, resulting in different shopping patterns and rapid price changes in some goods. How will changes such as these be reflected in headline inflation measures such as the Consumer Prices Index (CPI)? This paper discusses problems in interpreting the CPI as a measure of how the cost of living is changing during the lockdown.

The dietary impact of the COVID-19 pandemic.

The COVID-19 pandemic led to significant changes in people's budgets, the opportunity cost of their time, and where they can purchase and consume food. We use novel data on food and non-alcoholic drink purchases from stores, takeaways, restaurants and other outlets to estimate the impact of the pandemic on the diets of a large, representative panel of British households. We find that a substantial and persistent increase in calories consumed at home more than offset reductions in calories eaten out. Households increased total calories relative to pre-pandemic by 280 per adult per day from March to July 2020, and by 150 from July to the end of 2020. Although quantity increased, there was little change in diet quality over the pandemic. All socioeconomic groups increased their calorie intake, with the largest rises for the highest SES households and the smallest for retired ones. We estimate that the changes could increase the proportion of adults who are overweight by at least five percentage points, two years after the pandemic onset.

Preparing for a pandemic: spending dynamics and panic buying during the COVID-19 first wave.

In times of heightened uncertainty, consumers face incentives to build up precautionary stocks of essential supplies. We study consumer spending dynamics during one such time, the first infection wave of the COVID-19 pandemic, using household scanner data covering fast-moving consumer goods in the United Kingdom. We document large increases in demand for storable products, such as food staples and household supplies, in the days before lockdown. Households in all socio-economic groups exhibit unusually high demand pre-lockdown, but there is a clear gradient, with the largest demand spikes for wealthier households. Although stories of people purchasing extreme amounts received a lot of attention, higher aggregate demand was mainly driven by more households than usual choosing to buy storable products, with only small increases in average quantities bought on a given trip. Temporary limits on the number of units per transaction, introduced following the demand spike, are therefore unlikely to lead to the avoidance of stock-outs.

High-Frequency Changes in Shopping Behaviours, Promotions and the Measurement of Inflation: Evidence from the Great Lockdown.

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.