📚 How to create a price index to calculate inflation for a basket of goods

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Price indices help citizens, businesses, and industries follow and predict trends in prices. A price index describes the price of an item compared to a base value measured at a particular time or in a particular place.

The government tracks price changes using several different indices. The most important is the Consumer Price Index (CPI).

To determine the CPI, data collection agencies collects thousands of price quotations from across the country for a basket of about 600 popular consumer goods and services. These items range from French fries and bus fares to tuition and Internet service.