Pandemic consumption patterns and inflation - mismeasurement of inflation

Very interesting thesis by some researchers that the consumption basket changed with the pandemic relative to the existing basket used for the CPI. Given this consumption change, inflation was actually higher than measured by the CPI because the prices in the actual basket consumed grew much faster than the basket used for measurement. For many, it feels like inflation has been higher because the goods purchased were associated with greater price increases. See "Inflation with Covid Consumption Baskets"

There is a difference between headline and core inflation of COVID consumption baskets, and there is a difference between low and high income groups; however, overall, the inflation calculated across different countries has been generally higher. There is the potential for policy mistakes from mismeasurement. There is also a problem of misallocation of investments given there is a wrong display of inflation from the government versus the inflation associated with purchasing power of a consumption basket.

The next question is what will happen if consumption follows the old weights. This may lead to lower inflation against the COVID weights and another measurement problem.