It’s that time of year when the ONS updates its famous ‘Basket of Goods and Services’. This time around there’s some notable additions and removals, which once again help to underline changing consumer purchasing behaviour.
This year, smart speakers, electric toothbrushes, bakeware and flavoured tea are some of the items added to the basket, while envelopes, washing powder and hi-fis have dropped out.
But why do we do it? And what are the key points to remember? Here, Phil Gooding explains more about our annual release.
The basket of goods is used to help measure the rising and falling cost of products and services over time, known as consumer price inflation. The ‘basket’ contains a range of goods and services bought by households. As the prices of the various items change over time, so does the total cost of the basket. Movements in consumer price inflation indices represent the changing cost of the shopping basket.
In practice, a sample of prices for a selection of representative goods and services in a range of UK retail locations is used. Currently, around 180,000 separate price quotations are collected every month in compiling the indices, covering around 700 representative consumer goods and services. These prices are collected in around 140 locations across the UK, from the internet and over the phone. Additionally, around 300,000 quotes are taken from administrative sources each month to measure owner occupiers’ housing costs, one of the key components in our headline measure of inflation.
Each year, some items are taken out of the basket and some are brought in to make sure the measures are up to date and representative of consumer spending patterns. This is important in helping to avoid potential biases that could otherwise develop, for example, due to the development of new goods and services or the tendency for consumers to switch from products whose prices are rising to others whose prices are falling.
Weighting is also an important part of the process. Weighting is used to make sure the effect of each item on inflation reflects its importance in terms of people’s actual spending and typical household budgets. The weights are also updated every year.
If we look back over the last 70 years of the basket of goods – as well as sometimes serving as a nostalgic trip down memory lane – we note evolving consumer trends. Sometimes this is a result of innovative technology leaving a product obsolete. It can also be a result of availability, with fewer stores stocking certain items, or alternatively, prices increasing or decreasing substantially.
Take the introduction of the cassette recorder in 1976. It was subsequently removed in 1987 as it was superseded by the CD player. The personal cassette player or Walkman also entered the basket in 1987. Both the latter inventions have of course become less popular themselves as streaming services, music downloads and smartphones have taken over.
Similarly, the changing shape of the basket does relate to the story of Britain from post-war until now. For example, as the country undertook a programme of mass house building in the late forties and fifties, electrical goods such as the vacuum cleaner entered the basket. Likewise, shortly after the founding of the NHS, prescription charges were added.
This year, there are changes relating to technology, the home, and how we contact one another. The introduction of smart speakers is one example of a relatively new product entering the basket. The addition of bakeware is, on the other hand, a nod to the resurgence of an item that has been in our lives for generations, but has seen its appeal renewed. Finally, while the postman’s round may be lighter due to fewer people using envelopes (one of the items removed this year), this also perhaps points to a reliance on email, instant messaging services and social media.
However, it is key to remember that while the changes to the basket often create the most prominent news headlines, much of the basket remains the same from year to year. Indeed, this year while there are 16 additions, 10 removals and 16 modifications, 688 items remain unchanged.
Find out more about this year’s Basket of Goods and Services here.
ONS senior statistician – Phil Gooding