Inflation and the Pandemic

Chowdhury, Aftab Uddin 2024. Inflation and the Pandemic. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

Most statistical agencies calculate the consumer price index (CPI hereafter) using past expenditure shares, as has been common practice across the world since inflation statistics started to be published after World War 2. Since expenditure shares usually evolve very slowly, with little change from year to year, this raised little debate. However, with the onset of the pandemic in 2020, this issue was brought to the fore as there were rapid shifts in expenditure patterns, especially during periods of lockdowns. A similar situation occurred in 2022, when energy prices skyrocketed because of the Russo-Ukrainian war. As a result, the question naturally arose as to whether the published inflation figures were accurate, as they were based on previous expenditure shares that were significantly different from the reality of 2020 and 2022. To address this question, chapters 3 and 4 have broadly discussed the inflation measurement issues during the Covid-19 pandemic and the energy crisis periods. In chapter 3, the study has adopted the actual household expenditure data from the national accounts to construct a true inflation rate (using the Fisher index) and found that the official inflation rate in the 33 OECD countries was an overestimate of true inflation for 23 and an underestimate in 10 countries in the first wave of the Covid-19 pandemic. In chapter 4, the study finds a downward bias in the official CPI inflation figure in 2022 due to the sudden changes in household energy expenditure in the UK and the European Union. The frequency of price changes at the micro-level measures the degree of aggregate price stickiness in a standard New Keynesian model (either in Calvo or in menu cost varieties). Therefore, it is important to know the price-setting behaviour of the UK firms with respect to the frequency of price changes. Chapter 5 addresses this question by exploring the role of macroeconomic variables and major economic events on the price-setting behaviour of the UK seller in terms of the frequency of price change, price-level dispersion, and the dispersion of price change. This study is unique in that it uses consumer demand in the time-series framework through household final consumption expenditure (HHFCE) rather than GDP growth or industrial output growth. Apart from inflation, the study finds some evidence that household consumption influences UK price behaviour. The study uses a detailed Abstract III price and household consumption dataset from the Office for National Statistics (ONS) to investigate how inflation and household consumption in different COICOP divisions affect price behaviour, which is very different between divisions. Furthermore, the study reveals that significant economic events like the Global Financial Crisis (GFC) and the Covid-19 pandemic, along with changes in the business environment such as VAT, significantly influenced the UK's price-setting behaviour from 1996 to 2023. Additionally, the study utilised the Davies (Prices and inflation in the UK – A new dataset, 2021) dataset to conduct the same exercise over an extended time frame from 1988 to 2023. This timeframe extension has also helped to capture how other drastic economic events from 1990 to 1992 impacted UK sellers' price-setting behaviour.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Schools > Business (Including Economics)
Uncontrolled Keywords:	Consumer Price Index (CPI), Household Final Consumption Expenditure (HHFCE), Classifications of Individual Consumption According to Purpose (COICOP), Covid-19 pandemic, Energy Price, CPI Microdata
Date of First Compliant Deposit:	23 May 2025
Last Modified:	23 May 2025 13:17
URI:	https://orca.cardiff.ac.uk/id/eprint/178441

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