Inflation with COVID-19 Consumption Baskets
Rapidly changing consumption baskets create bias in official estimates of inflation
By adjusting inflation consumption baskets to better match actual spending during the
COVID-19 pandemic, we are able to get a more accurate measurement of the inflation experienced by an average consumer.
COVID-19 has dramatically changed the average consumer’s expenditure profile. For instance, spending on transportation has dropped dramatically while spending on food at home has risen sharply. Official measures of inflation are slow to adapt to this change in consumption and therefore may not accurately reflect the inflation experienced by the average household. Using actual, card-based spending data, we adjust our consumption basket to closely match the consumption weights during the pandemic. In doing so, we find that the true inflation experienced by consumers in most countries has been higher than reported in the official statistics.