PPI and XMPI Compilation

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PPI and XMPI Compilation

• Seminar on challenges in economic Statistics
• Tehran, Iran
• November 2008
• Presentation by Carsten Boldsen Hansen, UNECE
• (carsten.hansen_at_unece.org)

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Overview

• 1. The PPI family
• 2. PPI in an open market economy
• 3. Export and import price indices (XMPI)
• 4. International recommendations
• 5. Future challenges

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1. The PPI family
Producer price indices
Output PPIs
Input PPIs
PPI Production for the domestic market
PPI Input from the domestic market
PPI Production for export
PPI Input from imports
PPI Total production
PPI Total input
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2. PPI in an open market economy

• Coverage of production and establishments
• The statistical unit for the PPI should be the
  output generating entity, the establishment, as
  outlined in the SNA
• Traditionally, one would like the PPI to cover
  the production on the economic territory
• Economic globalization makes the identification
  of the statistical unit and the scope of the PPI
  still more difficult in practice!

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2. PPI in an open market economy

• The situation today
• Most PPIs limited to the industrial sector,
  including manufacturing, mining and energy
• Agriculture and services are excluded
• Services - .i.e. transport, communication,
  medical care, trade, business services - grow in
  importance.
• It becomes still more problematic to leave
  services out
• Many countries are progressively developing PPIs
  for services
• EU member countries are required to compile PPIs
  for the services producing industries.
• The non-observed economy often excluded but may
  be important

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2. PPI in an open market economy

• Challenges of economic globalization
• Outsourcing
• Goods for processing
• Merchanting
• Virtual corporations
• Multinational enterprises (MNEs)
• E-commerce
• Makes the production of statistics, also the PPI,
• more difficult and more challenging!

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2. PPI in an open market economy

• Goods for processing current treatment
• Goods for processing new SNA/BOP convention

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2. PPI in an open market economy

• Merchanting
• An enterprise in country A buys goods in country
  B
• The goods never enter country A but are sold to
  country C
• The ownership moves from B to A and from A to C
• NA will look for values of flows according to
  change in ownership
• What will the PPI compilers do?

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2. PPI in an open market economy

• The challenges of globalization
• The traditional coverage and relevance of PPI is
  questioned
• How to decide which production activities to
  include - in principle - in practice
• The treatment of globalized production may also
  depends on the different purposes of PPI
• If such activities are included, how should they
  be price followed?
• There are no easy or general answers to these
  questions

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2. PPI in an open market economy

• The prices
• For the PPI it should be the prices received by
  the producer, i.e. basic prices (SNA) excluding
  taxes plus subsidies
• Input PPIs The price actually paid by the
  purchaser, including taxes net of subsidies, i.e.
  purchasers prices
• Transfer prices
• Becomes more common as (international) trade is
  growing and posses serious measurement problems
• Often they do not reflect real market prices. In
  such cases
• Use estimated or imputed prices, or
• Exclude the transfer prices from the index

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2. PPI in an open market economy

• Some recommendations
• Decide on the target of the PPI what should in
  principle be covered, and ensure a clear
  delineation
• Try in practice to be as close to the target as
  possible
• The relationship and coherence with other
  statistics, notably the national accounts, should
  also be considered.
• Cooperate with national accounts, and other
  areas - may provide weighting data - may
  use PPI for deflation

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3. Import and export price indices

• Ten basic steps to develop XMPIs
• 1. Defining the objective, scope and conceptual
  basis
• 2. Deciding on the coverage and classification
• 3. Deriving the weighting patterns of the
  indices
• 4. Designing the samples for the indices
• 5. Collecting and editing the prices
• 6. Adjusting for changes in quality
• 7. Calculating the indices
• 8. Disseminating the indices
• 9. Maintaining samples of reporters and
  commodities
• 10. Reviewing and reweighting the indices

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3. Import and export price indices

• 1) Defining objective, scope and conceptual basis
  of the index
• Consult with stakeholders and users
• Consider coherence with other data (national
  accounts and BOP)
• 2) Deciding on the coverage and classification
  structures of the indices
• Examine data sources for weights and prices
  (trade statistics, customs data)
• Decide on the actual coverage of goods and
  services.
• Select classification

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3. Import and export price indices

• The most commonly used classifications are
• Harmonized System of Commodity Description and
  Coding (HS)
• Standard International Trade Classification
  (SITC)
• Central Commodity Classification (CPC)
• International Standard Industrial Classification
  of All Economic Activities (ISIC)
• The European classification of economic
  activities (NACE)

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3. Import and export price indices

• 3) Deriving the weighting patterns of the indices
• Select the level at which to form the elementary
  aggregates
• A relatively high level of aggregation - e.g.
  4-digit product or industry group gives better
  discretion to select replacements, introduce new
  products and maintain the sample
• Weights aims to be representative for the period
  in which they are used
• Some normalizing or smoothing over more years may
  be appropriate to avoid irregular or extreme
  weights

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3. Import and export price indices

• 4) Designing the samples for the indices
• Identify the sample frame - a listing of the
  population of units from which to select. Data
  sources for a frame include
• - Customs data,
• - Statistical business registers,
• - trade organizations,
• - commercially maintained lists,
• - Registers (company registers, taxation
  records
• - Telephone directory yellow pages,
• Select the establishments from the frame by
• - Purposive/judgmental sampling
• - Probability sampling
• Take market conditions/concentration into account

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3. Import and export price indices

• 5) Collecting and editing the prices
• Initialize collection from a company through a
  personal visit, by telephone, Internet, fax or
  mail contact, or some combination
• Select the products to be price-followed
• - should be representative of the whole
  elementary aggregate
• Decide on the time of price recording
• - point-in-time a specific day
• - period-in-time a period of days
• Use specification pricing
• - require well-specified product descriptions
• - should include all price determining
  characteristics
• - when characteristics change, adjustment
  should be made
• Follow actual market transaction prices
• Conversion into domestic currency

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3. Import and export price indices

• 6) Adjusting for quality changes
• Use well-specified detailed product
  descriptions
• Select products expected to remain on the market
  for some time
• Apply quality adjustment when replacements take
  place
• 7) Calculating the index
• Decide on index calculation formulas for
  elementary and higher-level indices
• Unit value indices should be used only for
  strictly homogenous groups of products

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3. Import and export price indices

• 8) Disseminating the index
• Disseminate long-term fixed base indices and
  12-months rates of changes
• Consult with user needs
• Problems with confidentiality for detailed levels
  in XMPIs
• 9) Maintaining the sample of companies and
  products
• Ensure procedures are in place to monitor and
  update the sample on a regular basis
• Some sectors are more dynamic and needs more
  careful and regular monitoring
• Weights within elementary indices needs also be
  updated

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3. Import and export price indices

• 10) Reviewing and reweighting the index
• Decide on the frequency of re-weighting
• Every 3 or 5 years may adequate under stable
  market conditions
• The more dynamic markets, the greater need for
  frequent update of the weights
• The greater variation in price changes, the
  greater need for frequent update of the weights

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5. Future Challenges for PPI and XMPI

• Exercise 3
• Discuss the following questions and list your
  answers
• a) What will be the main challenges in the
  calculation of CPI and PPl in your country the
  next 5-10 years?
• b) What will be the likely obstacles and can
  you propose any way in which to overcome these?

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4. International recommendations

• Producer Price Index Manual. Theory and Practice
  (2004). www.imf.org/external/np/sta/tegppi/index.
  htm
• Export and Import Price index Manual
  forthcoming. Draft available on
  www.imf.org/external/np/sta/tegeipi/index.htm
• Methodology of short-term business statistics.
  Interpretation and guidelines. Available online
  from Eurostats webpage
• The Voorburg Group on Services Statistics.
  Webpage http//www4.statcan.ca/english/voorburg/
• Methodological Guide for Developing Producer
  Price Indices for Services. Eurostat, 2005.
  Available from Eurostat and OECD web
• Handbook on price and volume measures in national
  accounts. Available from Eurostat website

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5. Future Challenges for PPI and XMPI

• Organisation of the statistical production
  process
• Application of international comparable
  classifications (COICOP, NACE, ISIC, HS)
• Index calculation methods
• Integration of CPI, PPI and XMPI calculation,
  administrative and IT-systems?
• Optimization of samples
• Dissemination of data and metadata