Measuring Inflation During the Pandemic with the Benefit of Hindsight

Abstract

This study has adopted the actual household expenditure data from the national accounts to construct a true inflation rate (using the Fisher index) and found that the official inflation rate in the 33 OECD countries was an overestimate of true inflation for 23 and underestimate in 10 countries in the first wave of the COVID-19 pandemic. The result obtained for the countries where true inflation was higher than the official rate in this study matches the results obtained by Cavallo (Inflation with covid consumption baskets, 2020) and Reinsdorf (COVID-19 and the CPI: Is inflation underestimated?, 2020). However, a significant difference has been detected for the countries where the official inflation exceeds the true measure in this study. The core reason behind the discrepancies is in the use of appropriate expenditure weights. This suggests caution in using credit-card based expenditure data when spending behaviour has changed dramatically.