Explain why inflation has dipped so low during the covid 19 period?
Answers
Answer:
The immediate effect on consumer price indices (CPI) across developed economies from the coronavirus crisis is likely to be negative overall.
• Energy prices have clearly collapsed, and this will pass through into petrol and heating oil prices.
• Food prices are likely to rise as the cost of production and distributions will increase given the public health restrictions.
• Prices of most core goods will soften as retailers mark down prices to maintain sales and reduce inventories. In other categories, prices could rise if there are supply shortages due to manufacturing and distribution shutdowns (electronic equipment, for example).
• There could be CPI data collection difficulties for many categories and services. In that case, the index for that category will be unchanged or based more on internet-based prices. For some categories, an unchanged CPI index will actually overestimate the true rate of inflation.