Basket of goods definition

Group of items purchased by households and individuals used in the process of measuring price changes

Basket of goods definition                                 

What is Basket of goods?

The basket of goods represents the value of a specific group of products and services. Products included in the basket are necessities and everyday products used by individuals and households. The purpose of the basket is to enable easier tracking of changes in the price levels of these goods. Accordingly, the change indicates whether or not there is an increase in inflation. Moreover, the basket is also used for calculating the Consumer price index (CPI) or the cost of living.

Tracking the potential changes in the level of inflation enables policymakers to adapt the direction of the fiscal and monetary policy. Based on the economic conditions (inflation or deflation), the policymakers can decide to implement expansionary, contractionary, or neutral policy.

Basket of goods meaning

The basket includes a variety of products from different categories — food and beverages, clothing, housing, transportation, education, medical expenses, and other items. Each group of products has its own weight in the basket.

The basket of goods is analyzed annually to examine the price differences i.e., the value of basket of goods from the current and previous year.  In addition, it should be adapted in accordance with the buying preferences of people. The reason is that consumers can change their spending habits from one period to another, and the basket of goods should reflect these new habits.

Basket of goods explained

Changes in the value of the basket of goods serve as the foundation for the calculation of inflation. A baseline, set by economists, serves as a starting point, a ground zero point, and the analysis includes changes from the baseline values. The baseline year is referred to as a reference base with a value of 100. Changes in the value of a basket of goods reflect changes in the CPI. For instance, if it is stated that CPI is 102, this would reflect inflation of 2 per cent.

The basket of goods is calculated for each market and country separately.

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
iPhone Image
Trade the world’s top tokenised stocks, indices, commodities and currencies with the help of crypto or fiat
iMac Image
Trade the world’s top tokenised stocks, indices, commodities and currencies with the help of crypto or fiat
iMac Image