7.9: Market Basket

The CPI tracks price changes of goods and services that the average consumer buys on a monthly basis. This may sound straightforward, but it is extremely vague. Who is an average consumer? How does the BLS know what this consumer is buying? How does the BLS track changes in prices and spending habits?

The key to understanding the CPI is the market basket of goods. This "basket" is supposed to be representative of the purchasing habits of the people the BLS surveys. Once the goods and services are picked for this basket, they are grouped. Then, relative weights, based on spending habits, are placed on each grouping.

To make the market basket as close to reality as possible, information was collected from the Consumer Expenditure Survey (CES) over the two years 2022 and 2023. In each of those years, more than 12,000 families from around the country provided information on their spending habits in a series of quarterly interviews. To collect information on frequently purchased items, such as food and personal care products, another 12,000 families in each of the three years kept diaries listing everything they bought during a two-week period. (Here is a sample diary, in PDF format.)

Altogether, more than 30,000 individuals and families provided expenditure information for use in determining the importance, or weight, of more than 2,000 categories in the CPI index structure.

To make the huge amount of information collected a little more "digestible," the BLS has divided all prices into eight major groups. I've listed them below, along with some specific items that you'd find in each group.

• 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
• Apparel: shirts, sweaters, 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, cable television service, 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

Below is an example of how the BLS breaks down major categories to specific items:

All items
	Food and beverages
		Food
			Food at home
				Cereals and bakery products
					Cereals and cereal products
						Flour and prepared flour mixes
						Breakfast cereal
						Rice, pasta, and corn meal
							Rice

For each of the many item categories, the BLS has used scientific, statistical procedures to choose samples of several hundred specific items within selected business establishments frequented by consumers. For example, the BLS may choose a carton of a dozen eggs, grade A, large size to represent the "Eggs" category.

All this information is used to select items for the market basket. Then, BLS data collectors (called "economic assistants") visit or call thousands of retail stores, service establishments, rental units, and doctors' offices all over the United States to obtain price information on the market basket items. These economic assistants record prices of about 80,000 items each month.

After selecting and monitoring a market basket of goods and services, the BLS must apply expenditure weights to the goods and services.