Revision of the Consumption Activity Index to Capture Recent Changes in Consumption Patterns

The Research and Statistics Department at the Bank of Japan compiles and publishes the Consumption Activity Index (CAI) to maintain a timely and accurate grasp of household consumption. This paper details revisions made to the compilation methodology of the CAI to improve its accuracy given recent changes in the consumption environment such as the expansion of e-commerce and the spread of the novel coronavirus (COVID-19). First, in addition to updating the weights on goods/services in accordance with the revision of the GDP statistics in December 2020, we replace the source statistics for items significantly impacted by COVID-19, such as food services and accommodations, to reflect the variations within each industry accurately. The revisions improve the performance of the CAI as measured by its correlation with and predictive power for household consumption in the Annual Report of National Accounts. Secondly, by incorporating "alternative data" based on credit card payments, we expand the range of online consumption captured by the CAI Plus, a supplementary index with the latitude to include newer goods/services, even where series of source statistics are short, in order to grasp shifts in consumption patterns promptly. COVID-19 has accelerated the expansion of online consumption, and digitalization is expected to entrench this shift in consumption from physical stores towards e-commerce in future. These trends point towards an increasing need to monitor the CAI Plus in addition to the original CAI going forward.