Basket of Goods: Definition, CPI Calculation, and Example

The consumer price index (CPI) measures the price change over time for a basket of goods and services, which represents consumer spending patterns. The Bureau of Labor Statistics (BLS) collects the prices of some 94,000 items to assemble its representative basket, then adjusts the numbers to ensure price changes don't reflect product quality improvements. The BLS uses a huge basket with 94,000 prices sampled monthly to assess inflation. It gathers prices from visits by BLS data collectors to retail and service outlets and calculates two versions of the consumer price index to reflect inflation rates. CPI only measures inflation as experienced by consumers, and policymakers often use changes in the representative basket of goods and services as measured by the CPI as benchmarks in setting monetary policy.
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