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

Producer Price Index Manual
particular problems—agriculture, clothing, steel,
ships, automobiles, and banking services, to name a
few. Pricing concepts and strategies for these and
other special cases are covered in more detail in
Chapter 10.
K.4 Statistical Units
1.182 The statistical unit in the PPI is usually a
single, homogeneous, output-generating entity such
as the establishment, a concept outlined in the 1993
SNA. Separate auxiliary, sales, or administrative
units are not included. This unit is the decisionmaking
unit for all production operations and maintains
records on prices and production activities. In
some cases records from a clustering of establishments
are sent to a single record-keeping unit, the
enterprise, from which prices will have to be collected.
1.183 The rapid rise in electronic commerce (ecommerce),
globalization, and outsourcing of production
is making the identification of the statistical
unit, the producing establishment, more difficult.
This is particularly the case with the formation of
virtual corporations. A virtual corporation is the
creation of a partnership among several companies
sharing complementary expertise and producing a
product with a very short life cycle. With the conclusion
of the product’s life span, the corporation is
disbanded. Also, a considerable volume of business
undertaken among corporations is being transacted
on the Internet, which is difficult to monitor. These
activities will require new approaches to identify
and capture such transactions in the PPI.
K.5 Classification
1.184 The classification system provides an organizing
structure for the PPI and is the first step in
sample surveying. It forms the index structure and
defines which industries, products, and aggregate
levels will be included. It also determines the publication
scheme for the PPI results. International
standard classification systems, discussed in Section
E.2 of Chapter 3, are available and should be
used to group economic activities and products. The
use of these classifications provides meaningful series
for policymaking and analysis, as well as facilitating
international comparisons.
1.185 Industrial classifications group producer
units according to their major kind of activity,
based mainly on the principal class of goods or services
produced—that is, by an output criterion. At
the most detailed four-digit International Standard
Industrial Code (ISIC) industry level, categories
are delineated according to what is in most countries
the customary combination of activities undertaken
by the statistical units, the establishments.
The successively broader levels of classification
(three-digit, two-digit, single-digit) combine the statistical
units according to character, technology, organization,
and financing of production. The major
international industrial classifications are: the International
Standard Industrial Classification of all
Economic Activities (ISIC), the General Industrial
Classification of Economic Activities within the
European Communities (NACE), the North American
Industrial Classification System (NAICS), and
the Australian and New Zealand Standard Industrial
Classification (ANZIC).
1.186 Product classifications group products into
somewhat homogeneous categories on the basis of
physical properties and intrinsic nature, as well as
the principle of industrial origin. The physical
properties and intrinsic nature are characteristics
that distinguish the product. These include raw materials
from which the goods are made, the stage of
production and way in which the goods are produced
or service rendered, the purpose or use of the
products, and the prices at which they are sold. The
product categories should be exhaustive and mutually
exclusive so that a product belongs to only one
category.
1.187 The categories of products (coded, for example,
to five-digits) can be aggregated to higher
level groupings (four, three, two, and single digits)
of products with similar characteristics and uses.
There are two primary international product classifications
used for PPIs: the Central Product Classification
(CPC) and the EUROSTAT Classification
of Products by Activity (CPA and PRODCOM). In
general, each five-digit subclass of the CPC consists
of goods and services that are predominantly
produced in one specific four-digit class or classes
of ISIC Revision 3.
L. Sampling and the Collection
of the Price Data
1.188 As explained in Chapter 9, there are two
levels of calculation involved in a PPI. At the lower
level, samples of prices are collected and processed
to obtain lower-level price indices. These lower-
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