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July 15, 2021
When economists calculate inflation, they’re trying to determine how prices have risen or fallen across the universe of products and services out there. But since they can’t track these changes for every item in this universe, they make up a “basket” a collection of specific products and services based on how people live and what they typically consume in the economy. The price of the basket’s contents are factored into a consumer price index, which helps measure inflation.
The basket is divided into broad categories that are common across countries: food, for instance, or transport, or healthcare, or clothing. Each item and category is weighted, to show how much of an average household budget is spent for those goods and services to show, essentially, what the cost of living is. This is where things become interesting. The weights accorded to each category and item are different between countries because every country’s residents spend money in different