Weighting bias and inflation in the time of Covid-19: Evidence from Swiss transaction data

Abstract

Sharp changes in consumer expenditure may bias inflation during the Covid-19 pandemic. Using public data from debit card transactions, I quantify these changes in consumer spending, update CPI basket weights and construct an alternative price index to measure the effect of the Covid-induced weighting bias on the Swiss consumer price index. I find that inflation was higher during the lock-down than suggested by CPI inflation. The annual inflation rate of the Covid price index was -0.4% by April 2020, compared to -1.1% of the equivalent CPI. Persistent ‘low-touch’ consumer behaviour can further lead to inflation being underestimated by more than a quarter of a percentage point until the end of 2020.

Pascal Seiler

PhD candidate and Researcher