Market Basket

What is a Market Basket?

A Market basket refers to a group of products that are designed in order to track the performance of a particular market segment. Consumer Price Index (CPI) is one of the main focuses of the market basket. Here the market basket tracks different consumer goods and employs their price levels in order to provide an estimation of Inflation.

In other words, a market basket is all about a permanent mix of goods and services that are constantly bought and sold in an economic system. Politicians, financial analysts, economists all use market basket in order to track price changes over time and also to determine inflation levels. CPI is the most popular and widely used market basket. Economics use this in order to predict consumer purchase trends. However, a market basket relates to financial securities when it comes to investors. Financial securities is the main idea behind Index Funds.

The global Financial System uses market baskets like S&P 500 and index funds. These are a broad sample of stocks, Bonds, and other securities in the market. It also provides investors with a benchmark through which they can compare their investment returns.

Importance of Market Basket

A market basket is widely used in retail. This is because it is based on the idea where most purchases take place on an impulse. The analysis tries to predict what a consumer might have purchased. A valid question to ponder would be what would have been the idea that occurred to the customer when the purchase was made?

Remember that market basket analysis can be employed to predict phone calling patterns, insurance frauds, credit card purchases, etc.

Market Basket Types

1. Consumer Price Index (CPI)

The CPI is an economic measure which looks at the average change in the price that is paid for a specific Basket of Goods and services over a period of time. It is also used as a macroeconomic indicator and is a measure of spending patterns and price levels for even customers and wage earners.

Over 200 categories regarding consumption within the CPA structure is analysed in order to produce goods and services. Additionally, every category that is selected is given a weight regarding the proportion to the basket of goods. Some of the categories include transportation, clothing, housing and education.

CPI market basket also includes elements outside consumer goods and services. Public school fees, water and sewage all are included in the market basket.

Financial products in stocks and bonds are not included in the market basket. Average tax on production services are included in the market basket.

2. Index

The index takes into account unemployed and the retired.