Cost of Living Indexes During A Pandemic
AbstractMajor product categories like in-person restaurant meals, live entertainment, and nonessential personal services are unavailable during a stay-in-place policy. As a result, their inflation rates cannot be measured directly. This paper uses previous research on the value of tourist amenities (Florida 2018a) and a newly developed model of tourist behavior to calculate a theoretical price for unavailable products. In this paper, the word “theoretical” designates an imputed price which is consistent with price measurement theory (Diewert and Fox 2020) (Diewert et al. 2019) (Diewert 2003). It does not imply any data problems or computational mistakes with either the consumer price index (CPI) published by the Bureau of Labor Statistics (BLS 2018) or with any other cost-of-living indexes.
This analysis estimates monthly product unavailability in every region of the United States. Based on those regional estimates, the paper calculates that the average U.S. consumer experienced theoretical inflation at least 1.4 percentage points higher than the published CPI in the first quarter of 2020, at least 6.0 percentage points higher than the published CPI in the second quarter, and at least 2.8 percentage points lower than the published CPI in the third quarter. The faster inflation rates in the first two quarters of 2020 reinforces the measured declines in real consumption during those quarters and the slower inflation rate in the third quarter of 2020 reinforces the measured recovery in real consumption during the third quarter. In other words, at least one third of the theoretical decline and recovery in real consumption is not reflected in published economic statistics.