As U.S. cities and states started locking down in response to the COVID-19 pandemic, retail alcohol sales spiked. And they did so despite various additional restrictions for retailers and their customers.
Clearly, consumers were at least in part shifting from consumption in restaurants and bars to consumption at home. (The FRED Blog previously reported a similarly strong substitution from meals in restaurants to meals at home.) So, given this spike in retail purchases, what happened to prices?
If demand shoots up like this, market forces should increase prices as well. And prices paid by consumers did rise, but only moderately, as shown by the consumer price index (CPI). This moderate increase is even more surprising given the much larger increase in prices paid by retailers, as shown by the producer price index (PPI). That is, the data suggest retailers did not pass the full increase in costs on to their customers.
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