Inflation spike and falling product variety during the Great Lockdown

No W20/17, IFS Working Papers from Institute for Fiscal Studies

Abstract: We characterize in?ation dynamics during the Great Lockdown using scanner data covering millions of transactions for fast-moving consumer goods in the United Kingdom. We show that there was a signi?cant and widespread spike in in?ation. First, aggregate month-to-month in?ation was 2.4% in the ?rst month of lockdown, a rate over 10 times higher than in preceding months. Over half of this increase stems from reduced frequency of promotions. Consumers’ purchasing power was further eroded by a reduction in product variety, leading to a further 85 basis points increase in the e?ective cost of living. Second, 96% of households have experienced in?ation in 2020, while in prior years around half of households experienced de?ation. Third, there was in?ation in most product categories, including those that expe-rienced output falls. Only 13% of product categories experienced de?ation, compared with over half in previous years. While market-based measures of in?ation expectations point to disin?ation or de?ation, these ?ndings indicate a risk of stag?ation should not be ruled out. We hope our approach can serve as a template to facilitate rapid diagnosis of in?ation risks during economic crises, leveraging scanner data and appropriate price indices in real-time.

Date: 2020-06-12
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Inflation Spike and Falling Product Variety during the Great Lockdown (2020)
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