united nations economic commission for europe statistical division ppi and xmpi compilation seminar...

United Nations Economic Commission for EuropeStatistical DivisionUnited Nations Economic Commission for EuropeStatistical Division

PPI and XMPI Compilation

Seminar on challenges in economic StatisticsTehran, Iran

November 2008

Presentation by Carsten Boldsen Hansen, UNECE([email protected])

November 2008 UNECE Statistical Division Slide 2

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


1. The PPI family

Producer price indices

Output PPIs Input PPIs

PPI – Production for the domestic market

PPI – Production for export

PPI – Total production

PPI – Input from the domestic market

PPI – Total input

PPI – Input from imports



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!



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



Challenges of economic globalization:OutsourcingGoods for processingMerchantingVirtual corporationsMultinational enterprises (MNEs)

E-commerce

Makes the production of statistics, also the PPI,more difficult – and more challenging!



Goods for processing – current treatment

Goods for processing – new SNA/BOP convention

Finished Goods

Service included in Finished Goods

Goods for processing Company A Company B

Country X Country Y

Cash = value of service

Finished Goods

Cash = value of service

Processing Service

Goods for processing Company A Company B

Country X Country Y



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?

Merchanting

(International Wholesaler)

Inventories

Customer Supplier

Country A

Country B Country C



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



The prices:

For the PPI it should be the prices received by the producer, i.e. basic prices (SNA) excluding taxes plus subsidiesInput PPIs: The price actually paid by the purchaser, including taxes net of subsidies, i.e. purchasers‘ prices

Transfer pricesBecomes more common as (international) trade is growing and posses serious measurement problemsOften they do not reflect real market prices. In such cases:

☞ Use estimated or imputed prices, or☞ Exclude the transfer prices from the index



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


3. Import and export price indices

Ten basic steps to develop XMPIs:

1. Defining the objective, scope and conceptual basis2. Deciding on the coverage and classification3. Deriving the weighting patterns of the indices4. Designing the samples for the indices5. Collecting and editing the prices6. Adjusting for changes in quality7. Calculating the indices8. Disseminating the indices9. Maintaining samples of reporters and commodities10. Reviewing and reweighting the indices



1) Defining objective, scope and conceptual basis of the indexConsult with stakeholders and usersConsider coherence with other data (national accounts and BOP)

2) Deciding on the coverage and classification structures of the indicesExamine data sources for weights and prices (trade statistics, customs data)Decide on the actual coverage of goods and services.Select classification



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)



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



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



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 aggregateDecide 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 pricesConversion into domestic currency



6) Adjusting for quality changes

Use well-specified & detailed product descriptionsSelect products expected to remain on the market for some timeApply quality adjustment when replacements take place

7) Calculating the index

Decide on index calculation formulas for elementary and higher-level indicesUnit value indices should be used only for strictly homogenous groups of products



8) Disseminating the index

Disseminate long-term fixed base indices and 12-months rates of changesConsult with user needsProblems 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 basisSome sectors are more dynamic and needs more careful and regular monitoringWeights within elementary indices needs also be updated



10) Reviewing and reweighting the index

Decide on the frequency of re-weightingEvery 3 or 5 years may adequate under stable market conditionsThe more dynamic markets, the greater need for frequent update of the weightsThe greater variation in price changes, the greater need for frequent update of the weights


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?


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 Eurostat’s 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


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

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