impact ofcovid 19 on inflation
Answers
Explanation:
Lockdowns, working from home, and physical distancing caused people to spend larger shares of their household budgets on food and housing, while fewer people bought nonessentials, like airline tickets and clothing. And with incomes down as millions have lost their jobs, spending on nonessential items will likely remain depressed.
The consumer price index (CPI) does not reflect these abrupt changes in spending patterns because the CPI weights are not continuously updated. For example, the CPI could be pulled down by a decline in the prices of nonessentials that are no longer purchased.
Explanation:
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CHART OF THE WEEK
Data Disruption: The Impact of COVID-19 on Inflation Measurement
NOVEMBER 10, 2020
By Marshall Reinsdorf
Lockdowns, working from home, and physical distancing caused people to spend larger shares of their household budgets on food and housing, while fewer people bought nonessentials, like airline tickets and clothing. And with incomes down as millions have lost their jobs, spending on nonessential items will likely remain depressed.
The consumer price index (CPI) does not reflect these abrupt changes in spending patterns because the CPI weights are not continuously updated. For example, the CPI could be pulled down by a decline in the prices of nonessentials that are no longer purchased.
A new IMF staff paper uses spending estimates derived from credit and debit card data to adjust the CPI weights to match spending patterns during the pandemic. The study finds that inflation during the first three months of the pandemic was actually higher than we thought.
The chart of the week looks at the difference over the February–May timeframe between a COVID-19 price index that adjusts the CPI weights based on the impacts of COVID-19 on spending in Canada and an index with unchanged CPI weights. The diamonds in the chart show the difference between the two indexes by region. In seven of the eight regions shown, the CPI is below the COVID-19 index. Looking at the average for all regions combined, the gap is 0.23 percentage points.