![]() By shutting down some sectors of the economy, the Great Lockdown may lead to changing patterns of demand that translate into shifts in the degree of market power firms exercise, which will affect equilibrium inflation. Conversely, inflationary pressures may arise from increases in production costs, due to interrupted supply chains and to the impact of social distancing restrictions on labor supply. Falling aggregate demand, due to heightened uncertainty and reductions in incomes and liquid wealth, may lead to deflationary pressures. It is therefore plausible that the crisis may lead to deflation, disinflation or higher inflation. The Great Lockdown entails a combination of substantial shocks to both demand and supply (e.g., Brinca et al. ![]() In this paper we use comprehensive scanner data from the United Kingdom to measure inflation during the Great Lockdown in real-time. (2020)), much less is known about how the crisis is impacting inflation. Although the real-time effects of the “Great Lockdown” on employment and consumer expenditure have been widely documented (e.g., Bartik et al. The COVID-19 pandemic led many countries to implement social distancing, lockdowns and travel restrictions, which have resulted in a collapse in the world economy unprecedented in peacetime. We hope our approach can serve as a template to facilitate rapid diagnosis of inflation risks during economic crises, leveraging scanner data and appropriate price indices in real-time. While market-based measures of inflation expectations point to disinflation or deflation, these findings indicate a risk of stagflation should not be ruled out. Only 13% of product categories experienced deflation, compared with over half in previous years. Third, there was inflation in most product categories, including those that experienced output falls. Second, 96% of households have experienced inflation in 2020, while in prior years around half of households experienced deflation. Consumers' purchasing power was further eroded by a reduction in product variety. ![]() ![]() Over half of this increase stems from reduced frequency of promotions. First, aggregate month-to-month inflation was 2.4% in the first month of lockdown, a rate over 10 times higher than in preceding months. We show that there was a significant and widespread spike in inflation. We characterize inflation dynamics during the Great Lockdown using scanner data covering millions of transactions for fast-moving consumer goods in the United Kingdom. ![]()
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