Price Indexes (5) Choosing a Basket

The choice of the basket is really important, so the selection process is usually based on a family or household expenditure survey. This ensures that, as far as possible, the basket is representative of the goods and services that households actually buy. This expenditure information is also used to ensure that each good and service is assigned a weight that reflects its importance in household budgets.

Choosing the basket of goods and services and list of outlets to be included in price surveys is the most difficult part of designing a price index. Any bias that is introduced will reduce the accuracy of the index. If price statisticians really wanted to fiddle the index, this is where they would do it. Selecting samples gives far greater opportunity for mischief than the much maligned hedonics.

The BLS attempts to reduce bias by using random samples of goods and services in all price surveys. Most other countries cannot afford this expense and use purposive sampling, which may introduce bias if care is not taken. However, the issues around designing robust random and purposive samples are well understood.