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What the corona crisis means for inflation measurement

by drbyos

Frankfurt Where once there were toilet paper rolls, detergent packs or oatmeal, many consumers in Germany are facing the same picture these days: empty shelves. In the meantime, some shops are moving to rationing the maximum quantity for scarce articles to two to three per person in order to prevent hamster purchases.

But while the products of daily needs can still be bought nationwide with a little waiting time, visits to the theater or cinema, but also flowers and clothing in brick-and-mortar retail can simply no longer be bought. Because the shops have closed to contain the corona virus.

Governments in Europe and the federal and state governments in Germany are currently trying everything to limit the economic, but above all the humanitarian, consequences of the coronavirus pandemic. Downstream, however, the question arises: How should inflation be measured in Germany when so many shops are closed?

After all, alongside the unemployment rate and gross domestic product, the inflation rate that is supposed to measure the development of monetary value is one of the most important economic indicators. For example, what impact has the rush for canned goods, flour, pasta or disinfectants on the inflation rate in Germany in recent weeks?

In Germany, the measure of inflation is the consumer price index (CPI), which is published by the Federal Statistical Office in Wiesbaden at the end of each month. Using a shopping cart, more than 650 types of goods are observed using 300,000 individual prices per month and summarized in the index.

For example, rents weigh 19.6 percent, while clothing items make up 3.3 percent of the overall index. In contrast, the canned fruit that has been particularly popular in the past few days only accounts for 0.042 percent in normal times.

In corona times, price monitoring becomes more difficult. Online price surveys have also been included in the consumer price index for some years. For example, Internet data for certain products, called web scraping, is automatically read out. Nevertheless, a not inconsiderable part of the prices are still determined locally by price collectors, who note the prices of various foods and services.

No comparable situation since the Second World War

“We consider publication of the consumer price index to be guaranteed,” the Federal Statistical Office announced at the request of the Handelsblatt. However, restrictions are likely for April 2020. How big these are is not yet foreseeable. “A comparable situation, in which certain goods and services could no longer be consumed or offered nationwide, has not existed since the Second World War,” says the reply letter.

However, the statisticians have methods to compensate for some problems of missing prices: For example, prices that are no longer observable could be updated with the average price development of the other products of a type of goods.

For package tours, which make up 2.7 percent of the shopping basket in Germany, the impact on inflation measurement is limited – despite the fact that the travel warning from the Federal Foreign Office and the numerous border closures mean nothing for this month Trips are more possible.

The reason lies in the booking behavior of many vacationers. “For each trip, all prices of the booking dates 180, 90, 60 and 30 days before departure are included,” says the consumer price statistics in Wiesbaden. In March 2020, all of the planned prices were included in the index calculation. This also applies to the prices in April. The prices for flights by air, train and long-distance coaches are collected using a similar procedure, which should alleviate the collection problems somewhat.

It becomes more difficult at European level

At the European level, however, price entry faces major challenges. Because in countries like Italy, France or Belgium curfews are already in place to fight the virus. Most stores are closed. In some countries, local price collection is therefore no longer possible, as the European statistics agency Eurostat reports.

Eurostat publishes the so-called Harmonized Index of Consumer Prices (HICP) once a month, which measures inflation in the euro zone. This is composed of the data from the individual national statistical offices and is a key indicator for the monetary policy of the European Central Bank.

Member States could replace missing prices with internet data or scanner data that directly use the electronically collected cash register data in retail. However, the price recording of special services such as flights or hotels has become much more difficult, as the European statistical authority continues.

However, Eurostat is also confident that the inflation data will still be published on time in March. How it looks for the months of April and after cannot be said at the moment. Work with the Member States on suitable solutions.

More: What helicopter money is and what it has to do with inflation.

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