The Measurement of Inflation During the Lockdown: A Trial Calculation

Abstract

The big changes in consumption patterns during the Lockdown need not of themselves have a big effect on measured inflation.  Using a guesstimate of lockdown weights for different types of consumption and applying them retrospectively to the 2019 inflation data as an experiment led to a slight increase in measured CPIH from 1.7% to 1.9%.  This net increase comes as some types of expenditure whose expenditure shares are reduced by Lockdown include ones with lower inflation (such as Clothing and Footwear) and some higher (Restaurants and Hotels) than CPIH.  The experiment suggests that the net effect is thus small.  The behaviour of inflation as measured by the CPIH may remain a reliable statistic during the lockdown period, but we need to keep a close look at the details as the effect of the lockdown might lead to changes that make the CPIH less reliable.

Table 1: Inflation and the lockdown weights 2020

The March CPIH has fallen to 1.5% from 1.7% in February.  The Lockdown weighted CPILW for March was unchanged at 1.8%.  The difference mainly reflects the fact that most of the expenditure categories affected by the LP had low inflation rates in March: Clothing and footwear, Furniture and household equipment, Transport, Recreation and Culture.  Despite the fall in CPIH, CPILW remained constant and the gap between the headline and the trial measure increased from 0.1% to 0.3%.  Although the collection of prices by the ONS happened before the full lockdown on 24th March, perhaps the behaviour of retailers and consumers was changing in anticipation of the lockdown. Retailers in sectors likely to be affected by the lockdown might have cut prices to sell stock before it came (for example in Clothing and Footwear).

See also Lockdown CPI