Producer Price Index (PPI) measures price differences of products at the first selling point following production.
There are two sub-indices for the industrial producer price index:
- Producer price index on the domestic market;
- Producer price index on the non-domestic market.
When combined, the sub-indices give the change in the PPI for a given industry.
The prices generally reflect the incomes that the producers actually obtain from the sale of these products.
The production price includes:
- Production cost
- Profit range
It does not include:
- Transport cost
- The excise tax
For producer prices on the non-domestic market, the prices are calculated at national frontiers, FOB (free on board); this means that the seller pays for transportation of the goods to the port of shipment, plus loading costs, and the buyer pays freight, insurance, unloading costs and transportation from the port of destination to his factory. All characteristics that determine the price of the products are taken into account. This includes quantity of units sold, transport provided, rebates, service conditions, guarantee conditions and destination.
Sector coverage of index:
- Section B Mining and quarrying
- Section C Manufacturing
- Section D Electricity, gas and steam supply
- Section E Water supply, sewerage and waste.
The classification used for these statistics is the Statistical Classification of Economic Activities (NACE Rev.2). The data are produced in national level, broken-down by activity grouped in two digits level of this nomenclature.
Observation units are enterprises and their units that according to their principal activity belong to Standard Classification of Activities (CPA 2008): The sources for selecting enterprises are the Annual Survey on Industrial Production and Custom Data.
The for PPI are all active enterprises that according to Statistical Business Register are operating in the sections: B, C, D, E.
Base period for the PPI is the year 2010.
The reference period of PPI survey monthly but published quarterly.
Data collection is carried out through the Survey on producer prices. From a sample of statistical units are collected the price. Completion of the information is relayed by direct interview by the interviewer with the contact person of the enterprise who is charged to declare the data.
The questionnaire of Producer Price Survey includes:
- The identification part, which provides information on the name of the enterprise, name of the president, address, fiscal code, legal form, etc.
- The technical part in which information is obtained on monthly prices and product specifications.
Method of calculations
The method used for calculation of index is “chain-index” so new weights are assigned each year. For calculation of products ‘weights of Producer Price Index for Domestic supply are used data coming from SBS while for calculation of products’ weights of Export Price Index are used data coming from Foreign Trade statistics.
The weighting is done on the unchained data. Either on price relatives or on index numbers (price relatives multiplied by 100). The index formula used is of the Laspeyres type (sometimes referred to as Lowe since the weights actually corresponds to Y-2 and not Y-1).
The weighting formula:
In this chain-index each transaction will be compared with its previous year December price. These price relatives will be weighted together to give index numbers for each product group, and so on to give index numbers for the total PPI. Hence, we will end up with monthly indices having December previous year as a base. These indices will then be chained to the previous indices for each year all the way back to the base. Note that all chaining will be done after weighting together the index numbers.
Is calculated automatically whenever price is entered, adjusted or imputed. The price ratio is also automatically adjusted when the base price is adjusted. One price ratio is calculated for each product each month. It is the current price divided either by the actual base price or by an adjusted base price.
Arithmetically weighted averages of individual observations form the index numbers. The index (short-term-link) for a 6-digit NACE is calculated by multiplying all weights by their corresponding index numbers (price ratio) then divide by the sum of the weights.
The imputation is done by multiplying the previous reported price by the average monthly price movement of the closest higher level of aggregation (6-digit or 2-digit).
For calculation of index is used Laspeyres type and is calculated as following:
The first part before the equal sign is stating the price level of December 2009 in percent of the average price level during 2010, hence adjusting the average of 2010 to 100.
The second term is the chained index movement from December 2009 to December y-1 (a product of yearly index links [short-term-links] from December to December). The last part is showing the movement from December y-1 to month m year y.
Separate indices are compiled and published for export and domestic PPI. Additional to PPI those separate indices of Export and Domestic are published, also at the same level of aggregation as PPI. Some levels might be excluded that regards export PPI in areas with low export weights. The calculations for the export and domestic use the same methodology for the total PPI.
The domestic and export weight sum up to the total PPI at all levels of aggregation.
Measures of Index
The annual change measures the price change between the current quarter and the same quarter of previous year. This measures is responsive to recent changes in price levels but can be influenced by one – off effects in either quarter.
Quarterly change measures the price changes between current quarter and previous quarter.