Producer Price Index Manual: Theory and Practice ... - METAC

Producer Price Index Manual
tions. They may be formed for products in various
regions of the country or for the country as a whole.
Likewise, elementary aggregates may be formed for
different types of establishments or for various subgroups
of products. The actual formation of elementary
aggregates thus depends on the circumstances
and the availability of information, and they
may therefore be defined differently in different
countries. However, some key points should be observed:
• Elementary aggregates should consist of groups
of goods or services that are as similar as possible,
and preferably fairly homogeneous.
• They should also consist of products that may
be expected to have similar price movements.
The objective should be to try to minimize the
dispersion of price movements within the aggregate.
• The elementary aggregates should be appropriate
to serve as strata for sampling purposes in
light of the sampling regime planned for the
data collection.
9.8 Each elementary aggregate, whether relating
to the whole country, an individual region, or a
group of establishments, will typically contain a
very large number of individual goods, services, or
products. In practice, only a small number can be
selected for pricing. When selecting the products,
the following considerations need to be taken into
account:
(i) The transactions selected should be ones with
price movements are believed to be representative
of all the products within the elementary
aggregate.
(ii) The number of transactions within each elementary
aggregate for which prices are collected
should be large enough for the estimated
price index to be statistically reliable.
The minimum number required will vary between
elementary aggregates, depending on
the nature of the products and their price behavior.
(iii) The object is to try to track the price of the
same product over time for as long as possible,
or for as long as the product continues to be
representative. The products selected should
therefore be ones that are expected to remain
on the market for some time so that like can be
compared with like.
B.1.1 Aggregation structure
9.9 The aggregation structure for a PPI is discussed
in Chapter 4, Section C.4, and in Figure 4.1.
Using a classification of business products such as
PRODCOM, Central Product Classification (CPC),
or Classification of Products by Activity (CPA), the
entire set of produced goods and services covered
by the overall PPI can be divided into broad sections,
divisions, and groups, then further refined
into smaller classes, and subclasses. Each elementary
aggregate is assigned a product code. This enables
statistical offices to aggregate elementary indices
at the lowest level to higher product classes,
groups, divisions, etcetera. In addition, each elementary
aggregate is assigned an industry (activity)
code from a standard industrial classification such
as International Standard Industrial Classification of
Economic Activities (ISIC) or General Industrial
Classification of Economic Activities within the
European Communities (NACE), and thus can be
aggregated by industry from the four-digit to the
three-digit and higher levels. The overall PPI
should be the same whether aggregated by industry
or product as long as each elementary aggregate has
the same weight in the industry and product aggregations.
9.10 The methods used to calculate the elementary
indices from the individual price observations
are discussed below. Working from the elementary
price indices, all indices above the elementary aggregate
level are higher-level indices that can be
calculated from the elementary price indices using
the elementary revenue aggregates as weights. The
aggregation structure is consistent so that the
weight at each level above the elementary aggregate
is always equal to the sum of its components. The
price index at each higher level of aggregation can
be calculated on the basis of the weights and price
indices for its components—that is, the lower level
or elementary indices. The individual elementary
price indices are not necessarily sufficiently reliable
to be published separately, but they remain the basic
building blocks of all higher-level indices.
B.1.2 Weights within elementary aggregates
9.11 In many cases, the explicit revenue weights
are not available to calculate the price indices for
elementary aggregates. Whenever possible, however,
weights should be used that reflect the relative
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