Basket of goods
What is a basket of goods?
Official statisticians put together a basket of goods in order to gauge the effects of inflation on a typical consumer. Because experts cannot measure or benchmark the price of everything, they choose a sample of goods and services that are considered representative of average household expenditure. The prices of this selection of items can then be tracked in order to calculate the official rate of inflation.
Where have you heard about the basket of goods?
When an increase or decline in the cost of living hits the news, the basket of goods will be mentioned. From time to time the items in the basket will be changed to keep up with changing consumer tastes. So with great fanfare, for example, cooking lard was removed in 1987 and replaced with olive oil.
What you need to know about the basket of goods.
An accurate reading of the rate of inflation is vital in a modern economy, for a number of reasons.
It gives people a sense of how much better or worse off they are getting, which may influence pay claims. Welfare payments and pensions are often linked to inflation too, and governments need an inflation reading to inform economic policy.
The basket of goods, ranging from meat and poultry prices to the cost of household insurance, gives a representative snapshot of how changes in prices are affecting family budgets. The figures can be collected monthly, which would of course be impossible with a list of all prices.
Find out more about the basket of goods.
To learn more about the basket of goods and its importance in measuring inflation, see our definition of the Consumer Price Index.