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

Producer Price Index Manual
tionate to size sampling. Such sampling within
companies has been based, whenever possible, on
value of shipments or sales data. Value-based figures
are preferred and are usually available for
higher levels of aggregation. Quantity measures,
usually tonnage, are viewed as acceptable at the
more detailed levels. For example, there is little difference
in value between several diameters of pipe
of the same carbon steel grade. Yet there is a significant
difference in value between carbon steel
and stainless steel grades.
10.74 Prices are collected from each reporter
based on basic shapes–sheet, plate, bar, rod–and on
the type of steel–carbon, stainless, or alloy steel.
Providing such specificity helps to align the products
with revenue statistics. Additional specifications
also are collected to further identify the product.
These might include some sort of item identification,
order or part number, the specific grade
(there are hundreds of them), dimensional information,
and other features, such as shipments to various
types of buyers. The types of transactions include
contract sales, multiyear sales to manufacturers,
and distributor sales. Discounts, if applicable,
are reflected in the price. Surcharges also may be
included in the price. Steel companies have at times
imposed temporary surcharges to cover sudden increases
in the cost of scrap metal, and nickel, molybdenum,
and other alloys.
10.75 The collected prices should be transaction
prices. Reporters sometimes prefer to provide list
prices to shield their pricing strategy. However, list
prices in this industry can be especially nonrepresentative
of price movements because of the potential
impact of imports on market prices. One way to
overcome this concern, as practiced in the United
States, is to define the transaction price as an average
and have a one-month lag. Because the industry
firms typically set the transaction price at a discount
from list prices, which yields widely varying prices
of similar products based on different transaction
characteristics, price averaging across all customers
for a specific product each month provided the most
representative transaction price obtainable. In addition,
average pricing proved popular with reporters
since it required no additional formatting of price
records and avoided revealing any buyer-specific
details. The major drawback was having to accept
the one-month lag.
10.76 Quality adjustment in this industry is a less
critical issue than for many others because the nature
of the products rarely changes. However, if a
product made of one alloy of steel is altered to be
made with another alloy of steel that enhances
strength, then a quality change would be made
based on the cost differential for the alloy. This
procedure is described in Chapter 7.
10.77 New products are introduced slowly by the
industry, and therefore there is little problem with
new and disappearing goods. The sheet metal that
covers a new car is substantially lighter and
stronger than 40 years ago, but it probably did not
change much from that used several years ago.
Given this pace of product change, the regular resampling
process is sufficient. However, one possible
issue with product change in the steel industry is
that, when a certain grade or type of steel starts to
become obsolete, output may be reduced as buyers
slowly switch to a better product. The type of buyer
may change as well. As with production cost data,
diligent and reliable reporters provide the best
means to maintaining index quality. Fortunately,
the very limited and gradual rate of product change
in the industry probably minimizes this problem.
10.78 The most common quality improvements
in the steel industry usually are associated with the
production process and often embodied in the building
of a new mill. Since it is hard to substantially
redesign a mill once it is built. Changes in the production
process, however, are not the type for
which quality adjustments are made. The introduction
of a new, lower-cost way to produce an existing
good without changing any of its characteristics
can result in lower price that should properly be
treated as a price change. However Care must be
taken to ensure that the new process does not alter
the characteristics of the good. In which case, some
adjustment in the observed change in price should
be made. Ideally, reporters who are in the sales or
accounting divisions will check with engineers.
10.79 Since steel prices collected are an average
from the previous month, the published index is the
measure of price change from two previous month.
Although this inconsistency in timing was accepted
to overcome reluctance to report transaction prices,
some statistical agencies may have an alternative
means of addressing reporter concerns.
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