7/31/2020 Nations struggle to measure inflation as virus disrupts shopping | Financial Times

Global Economy
Nations struggle to measure inflation as virus disrupts shopping
Store closures and frozen spending leave gap in policymakers’ economic tracking

People queue outside shops in Paris. Coronavirus lockdowns have disrupted shopping habits, making it harder for statisticians
to collect data on price changes © Geoffroy van der Hasselt/AFP/Getty

Delphine Strauss in London APRIL 27 2020

Coronavirus-driven store closures and the enforced freeze in large areas of

consumer spending have made it impossible to produce accurate data on inflation,
leaving a big gap in policymakers’ ability to track how lockdowns and stimulus
measures are affecting the economy.

Statistical authorities in the US, UK, France and Italy have all warned in recent
weeks that they are no longer able to conduct face-to-face visits to collect prices,
while big shifts in consumer behaviour mean that the weighted baskets of goods
and services they track are no longer representative of household spending.

Statisticians measure the overall level of inflation in an economy by tracking price

changes for a basket of representative goods and services — ranging from
essentials such as food, energy and transport to consumer services such as
hairdressing, funerals and dating agency fees — with each item weighted to reflect
its importance in a typical household’s budget.

The latest data, for March, is only modestly affected by the shutdowns to deal with
the spread of the pandemic, but statistical agencies have said that the longer
lockdowns are in place, the harder it will become to produce reliable data —
especially if coronavirus leads to lasting changes in the pattern of consumer
spending.

https://www-ft-com.ezproxy.babson.edu/content/c903d75c-3658-4600-bbfc-31b7418372cf 1/4
7/31/2020 Nations struggle to measure inflation as virus disrupts shopping | Financial Times

“The health crisis we are going through is profoundly and suddenly disrupting the
structure of household consumption,” France’s national statistics agency Insee said
in a note published alongside figures for March — adding that these largely
reflected conditions at the start of the month, before the country went into
lockdown, and that the gaps in the data for April, due next month, would be bigger.

This presents a big problem for central banks — which already face charges from
some critics that their stimulus policies will lead to hyperinflation, while others
warn that the world is falling into a deflationary trap that will leave indebted
governments in deep financial difficulty. It also means that governments risk
underestimating the extent of financial hardship facing households, if official data
do not accurately capture changes in the prices of essential goods and services.

“It will be more difficult to interpret the inflation data during the current crisis,”
Silvana Tenreyro, an external member of the Bank of England’s monetary policy
committee, said earlier this month. “While Covid-19 is still widespread . . . CPI
[consumer price index] inflation is not going to be as informative as usual about
the balance of supply and demand in the economy.”

The US and the UK have until now relied on visits to physical stores to collect most
prices; on-the-ground research also accounts for 40 per cent of France’s inflation
index, and 50 per cent of Italy’s. Emerging economies such as India — where
researchers usually collect data from more than a thousand markets each month,
as well as from more formal businesses — may face even bigger difficulties.

Even countries such as the Netherlands, which collects all prices remotely, face the
bigger issue that in many areas of consumption — from air travel to haircuts and
eating out — prices are simply unavailable.

For now, statisticians are filling in the

Editor’s note
The Financial Times is making
key coronavirus coverage free
to read to help everyone stay
informed. Find the latest here.
blanks as best they can, using web scraping
and other methods to collect prices
remotely and estimating those that are
missing. But estimates will become less
reliable the longer lockdowns persist; the
US Bureau of Labor Statistics has warned of
potential long-term impacts on its inflation
figures if it is unable to conduct the
consumer expenditure survey it usually
uses to calculate the weighting of items in
its inflation basket.

https://www-ft-com.ezproxy.babson.edu/content/c903d75c-3658-4600-bbfc-31b7418372cf 2/4
7/31/2020 Nations struggle to measure inflation as virus disrupts shopping | Financial Times

The fundamental problem is that the baskets of goods and services statisticians
track no longer match household spending patterns.

In the UK, for example, meals out, package holidays and recreational or cultural
services make up more than 15 per cent of the CPI basket. Even when lockdowns
lift, people will spend less in these areas for some time.

“We often think of inflation as measuring how much extra money we need to
maintain a constant standard of living . . . In today’s circumstances, there is a much
weaker relationship between what is happening to prices and what we might need
to maintain the same standard of living we enjoyed last year,” said Peter Levell at
the UK’s Institute for Fiscal Studies.

Ms Tenreyro argued that the crisis could amplify existing trends that have pushed
inflation down, if it accelerated the shift to online retail, where price-setting is
more efficient, and if more widespread homeworking put pressure on commercial
rents.

In the short term, gaps in the data make it harder for policymakers to track the
extent of hardship among low-income households at a time when many are under
intense strain. For example in the UK, food price inflation may be understated,
because, while prices are available online, many stores are offering fewer discounts
than usual.

Tim Graf, a strategist at State Street Global Markets, said the bank’s Price Stats
series, which tracks online prices in 22 countries, was faster-moving than official
data — and showed pronounced food price inflation in several European countries
in recent weeks.

Copyright The Financial Times Limited 2020. All rights reserved.

https://www-ft-com.ezproxy.babson.edu/content/c903d75c-3658-4600-bbfc-31b7418372cf 3/4
7/31/2020 Nations struggle to measure inflation as virus disrupts shopping | Financial Times

https://www-ft-com.ezproxy.babson.edu/content/c903d75c-3658-4600-bbfc-31b7418372cf 4/4