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Inflation Spike and Falling Product Variety during the Great Lockdown

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  • Jaravel, Xavier
  • O'Connell, Martin

Abstract

We characterize inflation 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 significant and widespread spike in inflation. First, aggregate month-to-month inflation was 2.4% in the first 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 effective cost of living. Second, 96% of households have experienced inflation in 2020, while in prior years around half of households experienced deflation. Third, there was inflation in most product categories, including those that experienced output falls. Only 13% of product categories experienced deflation, compared with over half in previous years. While market-based measures of inflation expectations point to disinflation or deflation, these findings indicate a risk of stagflation should not be ruled out. We hope our approach can serve as a template to facilitate rapid diagnosis of inflation risks during economic crises, leveraging scanner data and appropriate price indices in real-time.

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  • Jaravel, Xavier & O'Connell, Martin, 2020. "Inflation Spike and Falling Product Variety during the Great Lockdown," CEPR Discussion Papers 14880, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14880
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    Cited by:

    1. Martin O'Connell & Pierre Dubois & Rachel Griffith, 2022. "The Use of Scanner Data for Economics Research," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 723-745, August.
    2. Ethan Ilzetzki & Carmen M. Reinhart & Kenneth S. Rogoff, 2020. "Will the Secular Decline In Exchange Rate and Inflation Volatility Survive COVID-19?," NBER Working Papers 28108, National Bureau of Economic Research, Inc.
    3. Balleer, Almut & Link, Sebastian & Menkhoff, Manuel & Zorn, Peter, 2020. "Demand or Supply? Price Adjustment during the COVID-19 Pandemic," IZA Discussion Papers 13568, Institute of Labor Economics (IZA).
    4. Sebnem Kalemli-Ozcan & Pierre-Olivier Gourinchas & Veronika Penciakova & Nick Sander, 2020. "COVID-19 and SME Failures," IMF Working Papers 2020/207, International Monetary Fund.
    5. Jennifer Peña & Elvira Prades, 2021. "Price setting in Chile: Micro evidence from consumer on-line prices during the social outbreak and Covid-19," Working Papers 2112, Banco de España.
    6. Anuradha Patnaik, 2022. "Measuring Demand and Supply Shocks From COVID-19: An Industry-Level Analysis for India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 16(1), pages 76-105, February.
    7. Aulia Rayna ASMADINA & Ariodillah HIDAYAT & Imam ASNGARI & Sri ANDAIYANI, 2021. "The Covid-19 Pandemic and Inflation in Indonesia," Romanian Journal of Economics, Institute of National Economy, vol. 53(2(62)), pages 27-39, December.
    8. Xavier Jaravel & Martin O'Connell, 2020. "High‐Frequency Changes in Shopping Behaviours, Promotions and the Measurement of Inflation: Evidence from the Great Lockdown," Fiscal Studies, John Wiley & Sons, vol. 41(3), pages 733-755, September.
    9. San Sau Fung & Simon Roberts, 2021. "The economics of potential price gouging during Covid-19 and the application to complaints received by the CMA," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-02, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    10. J. Peña & E. Prades, 2021. "Price setting in Chile: Micro evidence from consumer on-line prices during the social outbreak and Covid-19," Working Papers Central Bank of Chile 906, Central Bank of Chile.
    11. Pascal Seiler, 2020. "Weighting bias and inflation in the time of COVID-19: evidence from Swiss transaction data," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-11, December.
    12. Bruce Lyons, 2021. "Unfinished Reform of the Institutions Enforcing UK Competition Law," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    13. Mauersberger, Felix, 2021. "Monetary policy rules in a non-rational world: A macroeconomic experiment," Journal of Economic Theory, Elsevier, vol. 197(C).
    14. Dylan Balla‐Elliott & Zoë B. Cullen & Edward L. Glaeser & Michael Luca & Christopher Stanton, 2022. "Determinants Of Small Business Reopening Decisions After Covid Restrictions Were Lifted," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 41(1), pages 278-317, January.
    15. Faria-e-Castro, Miguel, 2021. "Fiscal policy during a pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    16. Pierre-Olivier Gourinchas & Ṣebnem Kalemli-Özcan & Veronika Penciakova & Nick Sander, 2020. "Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis," NBER Working Papers 27877, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    inflation; Great lockdown;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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