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 economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
in an
economy
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
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.
Consumer basket
The most common type of market basket is the basket of
consumer goods
A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
used to define the
Consumer Price Index
A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time.
Overview
A CPI is a statistica ...
(CPI). It is a sample of
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
and
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
, offered at the
consumer market
A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. T ...
.
In the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
, the sample is determined by
Consumer Expenditure Survey The Consumer Expenditure Survey (CE or CEX) is a Bureau of Labor Statistics (BLS) household survey that collects information on the buying habits of U.S. consumers. The program consists of two components — the Interview Survey and the Dia ...
s conducted by the
Bureau of Labor Statistics
The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of t ...
. 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 baskets
Other types of baskets are used to define the
Producer Price Index
A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output.
Its importance is being undermined by the steady decline in manufactured goods as a share of spending.
...
(PPI), previously known as the
Wholesale Price Index
The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries (like the Philippines) use WPI changes as a central measure of inflation. But now India has adopted new CPI to measure inflation. However, ...
(WPI), as well as various
commodity price indices A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodit ...
.
The
GDP deflator
In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the va ...
essentially uses a basket made of every good in the economy, in proportion to the amount produced.
Issues
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).
When measuring inflation, we must find goods that exist at different points in time and, ideally, have similar utility to consumers at those times. This is difficult.
For example, cars might be common purchases today, but they didn't exist in 1900, when horses were used for transportation. So, even though transportation is important, putting a car in the basket is problematic. This problem exists over short timespans, because the concept of "car" changes with time. The cars of today last longer and go faster than the cars of only a few years ago. Researchers measuring inflation usually include "transportation" in their basket, because it is an important consumer purchase, but they must account for these differences in the transportation by other means.
When measuring PPP, there are similar issues. In different parts of the world, different goods might play similar roles in the economy. So, a researcher measuring PPP might need to account for rice's popularity in China and corn (maize)'s popularity in the USA. Also, fashion and culture may dictate that certain goods may have drastically different utilities in different places. For example,
beef is not valued in Hindu areas and pork is not valued in Muslim areas.
Some approaches account for these differences by having two baskets and averaging the inflation/PPP of them. For example, a basket of goods consumers bought in 1900 and a separate basket of goods consumers buy today. After computing the price of each basket in 1900 and today, the inflation over the time period is an average of the increase in the two baskets. A common usage of this two-basket-averaging is the
GDP deflator
In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the va ...
, where the basket contains every good produced in the economy at a given point in time.
See also
*
Market basket analysis
Affinity analysis falls under the umbrella term of data mining which uncovers meaningful correlations between different entities according to their co-occurrence in a data set. In almost all systems and processes, the application of affinity anal ...
- a distinct concept in
data mining involving the analysis of items frequently purchased together.
References
DM Review article on Market basket analysis
;Specific
{{Authority control
Price indices
Financial markets