Household Inventory, Temporary Sales, and Price Indices
Large-scale household inventory buildups occurred in Japan five times over the last decade, including those triggered by the Tohoku earthquake in 2011, the spread of COVID-19 infections in 2020, and the consumption tax hikes in 2014 and 2019. Each of these episodes was accompanied by considerable swings in GDP, suggesting that fluctuations in household inventories are one of the sources of macroeconomic fluctuations in Japan. In this paper, we focus on changes in household inventories associated with temporary sales and propose a methodology to estimate changes in household inventories at the product level using retail scanner data. We construct a simple model on household stockpiling and derive equations for the relationships between the quantity consumed and the quantity purchased and between consumption and purchase prices. We then use these relationships to make inferences about quantities consumed, consumption prices, and inventories. Next, we test the validity of this methodology by calculating price indices and check whether the intertemporal substitution bias we find in the price indices is consistent with theoretical predictions. We empirically show that there exists a large bias in the Laspeyres, Paasche, and Törnqvist price indices, which is smaller at lower frequencies but non-trivial even at a quarterly frequency and that intertemporal substitution bias disappears for a particular type of price index if we switch from purchase-based data to consumption-based data.
In the first week of March 2020, when the first wave of COVID-19 infections hit Japan, supermarket sales went up more than 20% over the previous year. This was due to hoarding by consumers stemming from an increase in uncertainty regarding the spread of the virus. Similar hoarding occurred during the third wave, which struck Japan in October 2020. Such hoarding has occurred not only during the COVID-19 pandemic but also after the Tohoku earthquake in March 2011 and the subsequent nuclear power plant accident in Fukushima, when residents of Tokyo and other areas that were spared serious damage went on a buying spree for food and other necessities. Consumer hoarding also occurred due to policy shocks: when the consumption tax rate was raised in April 2014 and in October 2019, people hoarded large amounts of goods just before the tax rate was raised, and a prolonged consumption slump occurred thereafter. Each of these episodes was accompanied by considerable swings in GDP, suggesting that fluctuations in household inventories are one of the sources of macroeconomic fluctuations in Japan.