COVID-19 and the CPI: Is Inflation Underestimated?
31 Pages Posted: 5 Jan 2021
Date Written: November 2020
COVID-19 changed consumers' spending patterns, making the CPI weights suddenly obsolete. In most regions, adjusting the CPI weights to account for the changes in spending patterns increases the estimate of inflation over the early months of the pandemic. Under-weighting of rising food prices and over-weighting of falling transport prices are the main causes of the underestimation of inflation. Updated CPI weights should be developed as soon as is feasible, but flux in spending patterns during the pandemic complicates the development as quickly as 2021 of weights that represent post-pandemic spending patterns.
JEL Classification: C43, E31, I12, L90, O18
Suggested Citation: Suggested Citation