Analysis · Finance
When Discounts Disappear, Inflation Can Hide in Plain Sight
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
A disappearing supermarket deal can raise the price shoppers actually pay without changing the regular shelf price. In their 2020 study, Xavier Jaravel and Martin O’Connell found that reduced promotional activity was central to a sharp inflation spike in Great Britain’s groceries and other everyday household goods during the first lockdown.
The researchers used Kantar purchase records from a panel containing around 30,000 households at any point in time. Households scanned barcodes and submitted receipts, allowing the authors to track quantities, prices paid, retailers and promotions. Their observations extended to 17 May 2020 and covered goods brought into the home, including food, toiletries and cleaning products.
For 18 March to 17 April, their monthly inflation measure was 2.4%. When they calculated inflation using only purchases without promotions, it was 0.94%. Meanwhile, the share of spending without any promotion was 5.5 percentage points higher than a year earlier. Both price discounts and multibuy offers became less prevalent in purchases.
Could shoppers simply have moved to more expensive outlets? The authors compared identical barcodes across retailers and shopping formats, then recalculated inflation holding those distinctions fixed. Switching explained little of the spike. They also compared price indices with different spending weights: unusually large changes in purchases did not produce unusually large measurement bias relative to earlier years.
These are observational comparisons, not a randomized test of why retailers reduced promotions. Higher costs and reputational concerns were possible explanations, not established causes. The analysis focused on continuing products, leaving out the cost-of-living effects of products entering or disappearing, and did not measure the whole household budget.
The practical lesson is about the benchmark: tracking regular prices alone can miss changes in effective prices. For these goods and this period, discounts were essential to understanding inflation; the findings do not establish a universal explanation for future price spikes.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- High‐Frequency Changes in Shopping Behaviours, Promotions and the Measurement of Inflation: Evidence from the Great Lockdown* Xavier Jaravel, Martin O’Connell
