Use of aggregated SPPIs as a macro economic indicator of inflationary pressure: country views and po

1
Use of aggregated SPPIs as a macro economic
indicator of inflationary pressure country views
and possible future STESWP work

• Richard McKenzie Seppo Varjonen
• OECD Statistics Directorate

2
Aggregation of Service Industry Producer Price
Indexes (SPPI)

• Development of SPPIs are in general more advanced
  in non EU OECD countries
• E.g. Australia, United States, Japan, Korea, New
  Zealand, Mexico all have extensive programs
• But Europe are catching up quickly .
• Initial priority of SPPIs is for detailed (e.g. 4
  digit level) indexes for use as deflators in
  national accounts
• OECD / Eurostat Methodological Guide for
  Developing SPPI is directed at compilation of
  detailed indices with national accounts as main
  user

3
Aggregation of Service Industry Producer Price
Indexes (SPPI)

• Also a strong interest in many countries with
  well developed SPPIs is on use of aggregates for
  inflation monitoring by central banks etc.
• Generally 1 digit ISIC or higher services
  aggregate
• Leads OECD to ponder
• Should aggregate SPPIs be more recognised as
  short-term macro economic indicators, are
  national users in all countries aware of their
  potential?
• Is more international cooperation needed in this
  field?

4
European Union STS Regulation

• STS Regulation specifies delivery of 2 digit
  level SPPIs by March 2009
• Currently many European Union countries produce /
  publish SPPIs at the 4 digit level only
• May not be aggregating yet due to problems of
  coverage, although many countries now have good
  coverage in some sectors
• Not much discussion yet at European level on
  possible use of aggregate indexes

5
Country feedback on questions posed

• 1 Has aggregation of SPPIs been considered and if
  so has this been discussed with users?
• 14 responses, 50 said No (all European countries
  except 1) citing lack of coverage at this stage
  so no real thought
• Of those responding yes, 6 out of 7 had consulted
  users on the aggregates or possible aggregates
  (equal split EU / non EU)
• Once potential users are consulted there seems to
  be strong interest and NSOs are actively pursuing
  this

6
Country feedback on questions posed

• 2 If no to Q1, would you consider it?
• Only 4 responses (all EU countries) all
  indicating that aggregation is a worthwhile aim
  and they would consult users

7
Country feedback on questions posed

• 3 If no to Q1, what are the barriers to
  aggregating SPPIs?
• 9 responses all citing lack of coverage as the
  barrier to aggregation (1 also said resource
  issues)
• Some issues raised over source of weights
• One country said they would not aggregate until
  they have 80 coverage

8
Country feedback on questions posed

• 4 Do aggregate SPPIs have value as a macro
  economic indicator of inflationary pressure?
• 14 responses, none doubting potential usefulness,
  but 1/3 citing likely usefulness
• 2/3 responses citing definitive user interest,
  half of which cited very strong interest by users
• Use to improve (aggregate) productivity measures
  in services cited by two countries (one user, one
  producer)
• Some countries noted that use by national
  accounts was still key issue and other use only
  secondary

9
Country feedback on questions posed

• 5 Support for OECD collection and aggregation to
  produce set of experimental aggregate indexes?
• 11 responses, 4 saying yes, 1 no
• Majority of responses (6) cited that if OECD were
  to do this it would need close country
  involvement
• Overall feeling of concern if OECD were to rush
  into such a program

10
Country feedback on questions posed

• 6 Support for OECD development of guidelines for
  aggregation with national experts, then perhaps
  collection and publication of aggregates?
• 16 responses of which 75 thought this was a good
  idea, some expressing desire to be involved
• 2 responses said OECD should not do anything
  before Eurostat
• 2 responses questioned the need, citing
  aggregation as being straight forward once
  coverage was acceptable
• Clear need for further clarification of what the
  aim of developing guidelines would be

11
Country feedback on questions posed

• 7 Is STESWP the right group to lead development
  of guidelines for aggregating SPPI in
  conjunction with Eurostat and Voorburg group?
• 13 responses of which 11 yes, but majority
  pointing out the importance of coordination with
  Eurostat and / or VG
• 2 questioned whether STESWP is the right group
  given the involvement already of other groups
  (one citing that membership would need to be
  altered)

12
Possible future STESWP work on this topic

• If guidelines were to be produced on aggregating
  SPPIs, they might cover the following issues
• Choice of weighting variable (e.g. turnover vs
  value added)
• Aggregation formula
• Coverage thresholds, of weight vs of coverage
  of (4 digit) industry components
• Imputation for missing industry components (here
  sharing national experience on evolution of
  indices for different industry components could
  be important)
• Relevance of aggregating across 1 digit level
  industries (what is the interpretation? How far
  can you go? Revisit weights?)
• Type of analysis performed by users on the data,
  reflect this back to method and detail of
  aggregation

13
Issues for discussion

• Should STESWP pursue this topic
• E.g. taking initiative in establishing a
  task-force to address issues in the previous
  slide
• How to best co-ordinate this with Eurostat and
  Voorburg group?
• OECD is heavily involved with Voorburg Group
• Eurostat will need to tackle similar issues to
  achieve STS-R
• OECD goal is the development of comparable
  service sector inflation measures
• Eventual aim for collection of aggregates from
  countries