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

1. An Introduction to PPI Methodology
L.2 Regular price collection
1.198 The previous section focused on the sampling
issues that arise when prices have to be collected
for a large number of products from a large
number of establishments. This section is concerned
with some of the operational issues relating to price
collection, which are discussed in detail in Chapter
6.
L.2.1 Frequency and timing
1.199 Calculating the PPI entails collecting prices
from businesses relating to particular products and
time periods. Decisions must be made about the frequency
of collection (monthly or quarterly) and the
time period covered for the prices (a single point in
time, several times during the month, or a monthly
average). Usually price collection is monthly and
covers the entire month. However, resource considerations
may limit collection to a single point in
time.
L.2.2 Product specifications
1.200 For each product in the sample, a detailed
list of the specifications needs be collected. These
specifications are those that are important in identifying
and determining the price and quality characteristics
of the detailed transaction. Details such as
product name, serial number, description or features,
size, units of measure, class of customer, discounts,
etc. should be included. The collection of
data on such quality characteristics is important to
the matched-models method, but it will be seen
from Section M below that they can serve as a data
source for hedonic regressions, which have a similar
function—to price-adjust replacement products
of different quality.
L.2.3 Price collection methods
1.201 The aim of survey collection techniques is
to facilitate the transmission of price data from
businesses to the statistical office in a secure and
cost-effective manner, while minimizing the administrative
burden of the respondent. In principle, the
relevant prices for a PPI should be the basic prices
actually received by the establishment. For some
products, the prices collected may be estimated
transaction prices because the transaction sampled
did not have sales during the reference period. In
addition, it is generally neither practical nor cost effective
to try to collect prices each month or quarter
directly from establishments by personal visits.
Data can effectively be collected using mail questionnaires,
telephone contacts, fax, and electronic
media. A range of approaches to PPI data collection
are presented in Chapter 6: postal survey, automated
telephone response, personal interview, telephone
interview, and Internet data provision. All of
these methods rely on good questionnaire design,
good respondent relations, and good interviewing
techniques. The exact methods chosen by countries
for particular industries will depend on the special
circumstances applicable to each form of collection
in their industry/country.
L.2.4 Continuity of price collection
1.202 A PPI is intended to measure pure price
changes. The products whose prices are collected
and compared in successive time periods should
ideally be perfectly matched—that is, they should
be identical in respect of their physical and economic
characteristics. Identical economic characteristics
include the terms and conditions of sale.
When the products are perfectly matched, the observed
price changes are pure price changes. When
selecting representative products, it is therefore
necessary to ensure that enough of them can be expected
to remain on the market over a reasonably
long period of time in exactly the same form or
condition as when first selected. Without continuity,
there would not be enough price changes to
measure.
1.203 Having identified the products whose
prices are to be collected, the normal strategy is to
ask the respondent to continue pricing exactly those
same products for as long as possible. The respondents
can do this if they are provided with very precise,
or tight, specifications of the products to be
priced. Alternatively, they must keep detailed records
themselves of the products that they have selected
to price.
1.204 The ideal situation for a price index would
be one in which all the products whose prices are
being recorded remain on the market indefinitely
without any change in their physical and economic
characteristics, except of course for the timing of
their sale. 16 Most products, however, have only a
16 It is worth noting that many theorems in index number
theory are derived on the assumption that exactly the same
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