IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbops/2023324.html
   My bibliography  Save this paper

Price setting during the coronavirus (COVID-19) pandemic

Author

Listed:
  • Henkel, Lukas
  • Wieland, Elisabeth
  • Błażejowska, Aneta
  • Conflitti, Cristina
  • Fabo, Brian
  • Fadejeva, Ludmila
  • Jonckheere, Jana
  • Karadi, Peter
  • Macias, Paweł
  • Menz, Jan-Oliver
  • Seiler, Pascal
  • Szafranek, Karol

Abstract

The coronavirus (COVID-19) pandemic caused a deep recession globally, as well as in the euro area, accompanied by a steep decline in inflation rates in 2020. This paper reviews some of the main challenges created by the pandemic for inflation measurement and provides micro price data analysis of how price setting has reacted to the strong COVID-19 shock. For this purpose, we use three different, but complementary, microdata sources for specific countries and sectors: micro price data underlying the official consumer price indices in Germany, Italy, Latvia and Slovakia; (scanner) data from German and Italian supermarkets; and online (web-scraped) prices for Poland. A common finding of the micro price studies in this paper is that state dependence significantly contributed to the price-setting response to the COVID-19 shock. Nevertheless, the extent and degree of responses varies widely by sector and even country, also depending on the severity of the pandemic situation. JEL Classification: D4, E31

Suggested Citation

  • Henkel, Lukas & Wieland, Elisabeth & Błażejowska, Aneta & Conflitti, Cristina & Fabo, Brian & Fadejeva, Ludmila & Jonckheere, Jana & Karadi, Peter & Macias, Paweł & Menz, Jan-Oliver & Seiler, Pascal &, 2023. "Price setting during the coronavirus (COVID-19) pandemic," Occasional Paper Series 324, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2023324
    Note: 1871516
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op324~38fc6eb1ad.en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christian Beer & Fabio Rumler & Joel Tölgyes, 2021. "Prices and inflation in Austria during the COVID-19 crisis – an analysis based on online price data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/20-Q1/, pages 65-75.
    2. Etienne Gagnon & David López-Salido, 2020. "Small Price Responses to Large Demand Shocks," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 792-828.
    3. Kehoe, Patrick & Midrigan, Virgiliu, 2015. "Prices are sticky after all," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 35-53.
    4. Fernando Alvarez & Francesco Lippi & Aleksei Oskolkov, 2022. "The Macroeconomics of Sticky Prices with Generalized Hazard Functions [“Optimal Inattention to the Stock Market With Information Costs and Transactions Costs,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(2), pages 989-1038.
    5. Oleksiy Kryvtsov & Nicolas Vincent, 2021. "The Cyclicality of Sales and Aggregate Price Flexibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 334-377.
    6. David Baqaee & Emmanuel Farhi, 2022. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis," American Economic Review, American Economic Association, vol. 112(5), pages 1397-1436, May.
    7. Santiago E. Alvarez & Sarah M. Lein, 2020. "Tracking inflation on a daily basis," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-13, December.
    8. Anderson, Eric & Malin, Benjamin A. & Nakamura, Emi & Simester, Duncan & Steinsson, Jón, 2017. "Informational rigidities and the stickiness of temporary Sales," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 64-83.
    9. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo & Josephine Smith, 2014. "How Frequent Are Small Price Changes?," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 137-155, April.
    10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    11. Ivancic, Lorraine & Erwin Diewert, W. & Fox, Kevin J., 2011. "Scanner data, time aggregation and the construction of price indexes," Journal of Econometrics, Elsevier, vol. 161(1), pages 24-35, March.
    12. Castelletti-Font Barbara, & Gautier Erwan, & Ulgazi Youssef, & Vertier Paul., 2021. "Inflation in France during the lockdowns [L’inflation en France durant les confinements]," Bulletin de la Banque de France, Banque de France, issue 234.
    13. Olivier Coibion & Yuriy Gorodnichenko & Gee Hee Hong, 2015. "The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications," American Economic Review, American Economic Association, vol. 105(3), pages 993-1029, March.
    14. Jana Jonckheere & Hélène Zimmer, 2020. "Consumer prices in light of the COVID-19 crisis," Economic Review, National Bank of Belgium, issue iv, pages 130-147, december.
    15. Jaravel, Xavier & O'Connell, Martin, 2020. "Real-time price indices: Inflation spike and falling product variety during the Great Lockdown," Journal of Public Economics, Elsevier, vol. 191(C).
    16. Jana Jonckheere & Hélène Zimmer, 2020. "Consumer prices in light of the COVID-19 crisis," Economic Review, National Bank of Belgium, issue iv, pages 130-147, december.
    17. Gonçalves, Eduardo & Henkel, Lukas & Kouvavas, Omiros & Porqueddu, Mario & Trezzi, Riccardo, 2021. "2021 HICP weights and their implications for the measurement of inflation," Economic Bulletin Boxes, European Central Bank, vol. 2.
    18. Jana Jonckheere & Hélène Zimmer, 2020. "Consumer prices in light of the COVID-19 crisis," Economic Review, National Bank of Belgium, issue iv, pages 1-18, december.
    19. Kouvavas, Omiros & Trezzi, Riccardo & Eiglsperger, Martin & Goldhammer, Bernhard & Gonçalves, Eduardo, 2020. "Consumption patterns and inflation measurement issues during the COVID-19 pandemic," Economic Bulletin Boxes, European Central Bank, vol. 7.
    20. Dedola, Luca & Gautier, Erwan & Nakov, Anton & Santoro, Sergio & De Veirman, Emmanuel & Henkel, Lukas & Fagandini, Bruno, 2023. "Some implications of micro price-setting evidence for inflation dynamics and monetary transmission," Occasional Paper Series 321, European Central Bank.
    21. Alberto Cavallo, 2020. "Inflation with Covid Consumption Baskets," NBER Working Papers 27352, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gautier, Erwan & Karadi, Peter & Conflitti, Cristina & Fabo, Brian & Fadejeva, Ludmila & Fuss, Catherine & Kosma, Theodora & Jouvanceau, Valentin & Martins, Fernando & Menz, Jan-Oliver & Messner, Tere, 2023. "Price adjustment in the euro area in the low-inflation period: evidence from consumer and producer micro price data," Occasional Paper Series 319, European Central Bank.
    2. Rudolf, Barbara & Seiler, Pascal, 2022. "Price setting before and during the pandemic: evidence from Swiss consumer prices," Working Paper Series 2748, European Central Bank.
    3. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.
    4. Borraz, Fernando & Livan, Giacomo & Rodríguez-Martínez, Anahí & Picardo, Pablo, 2022. "Price, sales, and the business cycle: Microeconomic evidence," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(1).
    5. Karadi, Peter & Amann, Juergen & Bachiller, Javier Sánchez & Seiler, Pascal & Wursten, Jesse, 2023. "Price setting on the two sides of the Atlantic - Evidence from supermarket scanner data," Journal of Monetary Economics, Elsevier, vol. 140(S), pages 1-17.
    6. Sheremirov, Viacheslav, 2020. "Price dispersion and inflation: New facts and theoretical implications," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 59-70.
    7. David Staines, 2023. "Stochastic Equilibrium the Lucas Critique and Keynesian Economics," Papers 2312.16214, arXiv.org.
    8. Cristina Conflitti & Riemer P. Faber & Brian Fabo & Ludmila Fadejeva & Erwan Gautier & Valentin Jouvanceau & Jan-Oliver Menz & Teresa Messner & Pavlos Petroulas & Pau Roldan-Blanco & Fabio Rumler & Se, 2022. "New Facts on Consumer Price Rigidity in the Euro Area (Erwan Gautier, Cristina Conflitti, Riemer P. Faber, Brian Fabo, Ludmila Fadejeva, Valentin Jouvanceau, Jan-Oliver Menz, Teresa Messner, Pavlos Pe," Working Papers 240, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Nicoletta Berardi & Erwan Gautier & Hervé Le Bihan, 2015. "More Facts about Prices: France Before and During the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1465-1502, December.
    10. Erwan Gautier & Cristina Conflitti & Riemer P. Faber & Brian Fabo & Ludmila Fadejeva & Valentin Jouvanceau & Jan-Oliver Menz & Teresa Messner & Pavlos Petroulas & Pau Roldan-Blanco & Fabio Rumler & Se, 2022. "New Facts on Consumer Price Rigidity in the Euro Area," Working Papers 2022/03, Latvijas Banka.
    11. Nao Sudo & Kozo Ueda & Kota Watanabe, 2014. "Micro Price Dynamics during Japan's Lost Decades," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 44-64, January.
    12. Carlos Carvalho & Niels Arne Dam & Jae Won Lee, 2020. "The Cross-Sectional Distribution of Price Stickiness Implied by Aggregate Data," The Review of Economics and Statistics, MIT Press, vol. 102(1), pages 162-179, March.
    13. Ueda, Kozo, 2023. "Duopolistic competition and monetary policy," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 70-85.
    14. Peter Karadi & Adam Reiff, 2019. "Menu Costs, Aggregate Fluctuations, and Large Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 111-146, July.
    15. Kim, Seongeun, 2019. "Quality, price stickiness, and monetary policy," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    16. Glandon, PJ, 2018. "Sales and the (Mis)measurement of price level fluctuations," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 60-77.
    17. Alex Nikolsko‐Rzhevskyy & Oleksandr Talavera & Nam Vu, 2023. "The flood that caused a drought," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 965-981, October.
    18. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    19. Jaravel, Xavier & O'Connell, Martin, 2020. "Real-time price indices: Inflation spike and falling product variety during the Great Lockdown," Journal of Public Economics, Elsevier, vol. 191(C).
    20. Benjamin Eden, 2018. "Price Dispersion And Demand Uncertainty: Evidence From U.S. Scanner Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1035-1075, August.

    More about this item

    Keywords

    consumer prices; COVID-19.; heterogeneity; inflation; microdata; price rigidity;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbops:2023324. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.