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Concept
Market basket
Summary
A market basket or commodity bundle is a fixed list of items, in given proportions. Its most common use is to track the progress of inflation in an economy or specific market. That is, to measure the changes in the value of money over time. A market basket is also used with the theory of purchasing price parity to measure the value of money in different places.
The most common type of market basket is the basket of consumer goods used to define the Consumer Price Index (CPI). It is a sample of goods and services, offered at the consumer market.
In the United States, the sample is determined by Consumer Expenditure Surveys conducted by the Bureau of Labor Statistics. The price collection is conducted by data collectors on a monthly basis, and is processed further by commodity specialists.
Examples of categories included in the basket are:
Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture, chairs)
Apparel (shirts and sweaters, pants, shorts, dresses, jewelry)
Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
Medical Care (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
Recreation (televisions, toys, pets and pet products, sports equipment, admissions)
Education and Communication (college tuition, postage, telephone services, computer software and accessories)
Other goods and Services (tobacco and smoking products, haircuts and other personal services, funeral expenses)
Other types of baskets are used to define the Producer Price Index (PPI), previously known as the Wholesale Price Index (WPI), as well as various commodity price indices.
The GDP deflator essentially uses a basket made of every good in the economy, in proportion to the amount produced.
When measuring inflation or PPP, there are difficulties in selecting the goods that are common at both places in time (for inflation) or space (for PPP).
Official source
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