Copyright 2010, The World Bank Group. All Rights Reserved. Producer prices, part 2 Measurement issues Business Statistics and Registers 1

Copyright 2010, The World Bank Group. All Rights Reserved. Sampling Broad coverage requires sampling Random sampling techniques may be used when enough relevant information is available PPI surveys often use panels Some form of panel rotation is recommended 2

Copyright 2010, The World Bank Group. All Rights Reserved. Sampling structure 3 The first step is selecting the industries and products that will be represented in the PPI 1 A cutoff approach can be used above a certain threshold level 2 A sampling frame is then built for each industry and product 3 For the industries not selected, the statistical office should determine if there are logical combinations of industries that can be made to reach the threshold level 4

Copyright 2010, The World Bank Group. All Rights Reserved. Point in time prices Point-in-time prices relate to the price of a product on a particular date in the month The main advantage of point-in-time pricing is that comparisons from month to month will be consistent One of the disadvantages of a set point in time for producer price indices is that a transaction may not have taken place on the specified date 4

Copyright 2010, The World Bank Group. All Rights Reserved. Period prices Period prices are an estimate of the price across the month and so are an average price for the month This approach usually yields a smoother time series The method is also easier for respondents Often a single price quotation is taken to represent the average price over the particular reference period 5

Copyright 2010, The World Bank Group. All Rights Reserved. Choice of collection period The choice of collection period is influenced by a number of issues, such as the frequency of collection, and the practicalities of price collection The choice of collection method becomes less important the more frequent the collection A distinction can be made between the frequency of collection and timing of observations 6

Copyright 2010, The World Bank Group. All Rights Reserved. High inflation During periods of high the timing of price collection takes on significant importance Quarterly collection may be inadequate Even in times of low inflation, it is important that early signals of upstream inflationary pressure are captured 7

Copyright 2010, The World Bank Group. All Rights Reserved. Products and services For each product group or service, prices for a set of specific representative products need to be fully specified for pricing These products should be typical of price movements of the range The selection of products from within the product range of each producer would ideally be undertaken from a complete census of the relevant transactions 8

Copyright 2010, The World Bank Group. All Rights Reserved. Essence of product specification Simply giving a product name is not sufficient The essential purpose of a good product specification is to ensure that a consistent price is collected from period to period Specifying a product precisely supports the adjust- ment of the price associated with any changes in the product quality or the terms and conditions of sale Some respondents object to providing full specification details 9

Copyright 2010, The World Bank Group. All Rights Reserved. Data collection methods While paper questionnaires are still the preferred method, alternative methods exist One involves the supply of a floppy disc containing an electronic questionnaire Electronic data transfer involves the transfer of data files directly from the establishment’s systems; the initial setup procedures are burdensome The use of is another collection method 10

Copyright 2010, The World Bank Group. All Rights Reserved. Discounts Producer prices should be transaction prices This means that discounts should be taken into account Discounts may be given because of volume of the purchase Problems occur if the volume sold to the representative customer changes from period to period Retrospective discounts based on sales volumes tend to be excluded 11

Copyright 2010, The World Bank Group. All Rights Reserved. Rebates Rebates are a form of discount where the discount is paid after the purchase A rebate may be given at the end of the year based on the customer’s total purchases The collection of discounted prices is complicated in practice 12

Copyright 2010, The World Bank Group. All Rights Reserved. Quality For measurement purposes, a product equates to a complete description The form of this description often is simply text It also can be highly structured For price measurement purposes, the comparative quality of a product comprises its description and price Distinct descriptions represent different qualities of products For index compilers, quality comprises the set of complete product descriptions ordered by price for a given month 13

Copyright 2010, The World Bank Group. All Rights Reserved. Quality changes If any variable in the product specification changes, the respondent should be questioned about the change and whether new features have been added If the price of the product changes mainly because of the change in the specification of the product a quality adjustment should be made 14

Copyright 2010, The World Bank Group. All Rights Reserved. Seasonal products Some products are seasonal The practice commonly adopted in such cases is to carry the last reported price forward Missing prices may be imputed based on prices for similar products An alternative solution is to have variable season weights 15

Copyright 2010, The World Bank Group. All Rights Reserved. New products Another potential source of error is distinguishing between new products and quality changes in old ones Prices of new products may be influenced by production constraints As more competitors enter the market prices may fall sharply This effect is not brought into the index fully by the usual methods Standard approaches wait too long to pick up these early downtrends in the prices of new goods 16

Copyright 2010, The World Bank Group. All Rights Reserved. Imponderable effects The same good provided at a more convenient location may command a higher price Further, different times of the day or periods of the year may also give rise to quality differences 17

Copyright 2010, The World Bank Group. All Rights Reserved. Missing products A product may be missing in a month for reasons other than being off-season or off- cycle Replacement methods include: Imputation Overlap Direct comparison Explicit quality adjustment 18

Copyright 2010, The World Bank Group. All Rights Reserved. Aggregating Aggregates are constructed by grouping individual goods and individual services into relatively homogeneous products and transactions Elementary aggregates may be formed for different types of establishments or for various subgroups of products Key points to be observed include: Elementary aggregates should imply homogeneity They should also consist of products that may be expected to have similar price movements The elementary aggregates should be appropriate to serve as strata for sampling purposes 19

Copyright 2010, The World Bank Group. All Rights Reserved. Principles of aggregation Each elementary aggregate will typically contain a large number of individual goods, services, or products In practice, only a small number can be selected for pricing For selection, considerations to be taken into account are: (i) Transactions should be representative (ii) Transactions within each elementary aggregate should be large enough (iii) The object is to try to track the price of the same product over time for as long as possible; products selected should therefore remain on the market for some time 20