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

Producer Price Index Manual
D.1 Identifying possible errors and
outliers
9.154 One of the ways price surveys are different
from other economic surveys is that, although
prices are recorded, the measurement concern is
with price changes. As the index calculations consist
of comparing the prices of matching observations
from one period to another, editing checks
should focus on the price changes calculated from
pairs of observations, rather than on the reported
prices themselves.
9.155 Identification of unusual price changes can
be accomplished by
• Nonstatistical checking of input data,
• Statistical checking of input data, and
• Output checking.
These will be described in turn.
D.1.1 Nonstatistical checking of input
data
9.156 Nonstatistical checking can be undertaken
by manually checking the input data, by inspecting
of the data presented in comparable tables, or by
setting filters.
9.157 When the price reports or questionnaires
are received in the statistical office, the reported
prices can be checked manually by comparing these
with the previously reported prices of the same
products or by comparing them with prices of similar
products from other establishments. While this
procedure may detect obvious unusual price
changes, it is far from sure that all possible errors
are detected. It is also extremely time consuming,
and it does not identify coding errors.
9.158 After the price data have been coded, the
statistical system can be programmed to present the
data in a comparable form in tables. For example, a
table showing the percentage change for all reported
prices from the previous to the current
month may be produced and used for detection of
possible errors. Such tables may also include the
percentage changes of previous periods for comparison
and 12-month changes. Most computer programs
and spreadsheets can easily sort the observations
according to, say, the size of the latest
monthly rate of change so that extreme values can
easily be identified. It is also possible to group the
observations by elementary aggregates.
9.159 The advantage of grouping observations is
that it highlights potential errors so that the analyst
does not have to look through all observations. A
hierarchical strategy whereby all extreme price
changes are first identified and then examined in
context may save time, although the price changes
underlying elementary aggregate indices, which
have relatively high weights, should also be examined
in context.
9.160 Filtering is a method by which possible errors
or outliers are identified according to whether
the price changes fall outside some predefined limits,
such as ±20 percent or even 50 percent. This
test should capture any serious data coding errors,
as well as some of the cases where a respondent has
erroneously reported on a different product. It is
usually possible to identify these errors without reference
to any other observations in the survey, so
this check can be carried out at the data-capture
stage. The advantage of filtering is that the analyst
need not look through numerous individual observations.
9.161 These upper and lower limits may be set
for the latest monthly change, or change over some
other period. Note that the set limits should take account
of the context of the price change. They may
be specified differently at various levels in the hierarchy
of the indices—for example, at the product
level, at the elementary-aggregate level, or at
higher-levels. Larger changes for products whose
prices are known to be volatile might be accepted
without question. For example, for monthly
changes, limits of ±10 percent might be set for petroleum
prices, while for professional services the
limits might be 0 percent to +5 percent (as any price
that falls is suspect), and for computers it might be
–5 percent to zero, as any price that rises is suspect.
One can also change the limits over time. If it is
known that petroleum prices are rising, the limits
could be 10 percent to 20 percent, while if they are
falling, they might be –10 percent to –20 percent.
The count of failures should be monitored regularly
to examine the limits. If too many observations are
being identified for review, the limits will need to
be adjusted, or the customization refined.
9.162 The use of automatic deletion systems is
not advised, however. It is a well-recorded phenomena
in pricing that price changes for many
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