Inflation data is being distorted by the pandemic because statisticians cannot keep up with big shifts in expenditure patterns caused by lockdown lifestyles, according to the Central Bank of Ireland. The shutdown has also made price checking more difficult, forcing experts to rely on estimates for 15 per cent of items included in the consumer price index.
A reported drop of 0.3 per cent in the index in 2020 is likely to have disguised actual underlying inflation, according to the Central Bank, because it was based on the pre-Covid spending habits of 2019. The index is updated annually based on consumer trends of the previous year. While this time lag normally makes little difference, the pandemic has thrown the data into disarray by failing to capture big changes such as a shift from eating out to eating at home, restricted travel and a big increase in home heating.
The distortion is likely to be repeated as the economy emerges from lockdown later this year because the basket of goods and services used to measure inflation in 2021 was changed at the start of the year to reflect the pandemic spending habits of 2020.
“Prices and total amount spent might increase in sectors for which there will be pent-up demand, such as restaurants, but the weights of these goods and services will continue to reflect the pandemic patterns,” the Central Bank warned in its recent quarterly bulletin.
It acknowledged that this is likely to confirm the public suspicions that prices are rising faster than official inflation statistics indicate. “Consumers are likely to experience a different level of inflation on what they buy compared to the consumer price index measure, due to the changing consumption basket as a result of the pandemic,” the Central Bank said. It predicts a 0.8 per cent rise in the index this year.