Basket of Goods

A basket of goods is a fixed set of products and services used as a benchmark to measure the price level and inflation in an economy. This concept is central to calculating the Consumer Price Index (CPI) and other inflation indices. The basket typically includes items that are representative of the average consumer's spending habits, such as food, clothing, housing, transportation, and healthcare. By tracking the cost of this basket over time, economists can gauge changes in the purchasing power of money and the cost of living.

Example

The CPI might track the price of a basket of goods that includes bread, gasoline, rent, and medical care to determine how much the cost of living has increased over a year.