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Understanding inflation: What is the basket of goods?

ONS looks at what is the basket, why it is updated and what it means to you

What is the basket?

The basket is a term used to describe the collection of goods and services that are used to measure consumer price inflation. This is the rate at which the prices of goods and services bought by households rise or fall.

The term ‘basket’ is perhaps a little misleading as it suggests goods included in your regular shop. While these items are included, other important types of purchases are included as well. For example, there are:

  • Household bills such as gas and electricity

  • Big ticket purchases such as fridges, cars and TVs

  • Services such as childminder fees, marriage licences and nursing home costs

  • Leisure activities such as football season tickets, holidays and concert tickets

It would be impractical and unnecessary to try to collect prices for everything, considering the thousands of different products available to purchase in the shops and online. Therefore around 700 different goods and services were selected, and between them they provide a fair representation of the full range of things people buy.

The choice of items is largely based on what people spend their money on and ONS makes no judgement over whether the items are necessities or not.

Why does the basket get updated?

When measuring inflation, it’s important to measure like for like prices. In other words, real change in prices is measured not change because an item has got bigger or smaller, better or worse. 

It is also important when measuring inflation to take account of changes in the sorts of things people buy due to changing tastes and advancements in technology. If these changes weren't made, the basket (and therefore the measurement of inflation) would become increasingly irrelevant to households. For example, it wouldn’t make sense to base inflation nowadays on the price of mangles.

These two important considerations are balanced by limiting changes to the basket to once a year. Most items in fact are kept in the basket over time. Everyday items such as bread and milk have been included since the very first basket in 1947.

How does the basket affect you?

Inflation affects the value of the pound in your pocket. Consumer price inflation measures are often used to uprate savings, contracts and are used in wage bargaining. It is vital therefore that the measurement of inflation is as accurate and relevant as possible. Updating the basket of goods is one of the key ways in which ONS achieves this.

Categories: Economy, Prices, Output and Productivity, Price Indices and Inflation, Consumer Price Indices, Consumer Prices Index, Retail Prices Index
Content from the Office for National Statistics.
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