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

1. An Introduction to PPI Methodology
applied to the transactions whether they be volume
discounts, settlement discounts, or competitive
price-cutting discounts, which are likely to fluctuate
with market conditions. Any rebates also need to be
considered. The collection of nominal list prices, or
book prices, is not reflective of actual transactions,
is unlikely to yield reliable price indices, and may
result in quite misleading results because fluctuations
in market prices are not captured.
1.329 The principles underlying the selection of
the sample of product specifications from a particular
business, whether using probability or nonprobability
sampling, are similar. That is, the outputs of
the business and the markets are stratified into categories
with similar price-determining characteristics.
For example, in selecting a sample of specific
motor vehicles in consultation with the manufacturer,
the first dimension may be the broad category
of vehicle (for example, four-wheel-drive recreational
vehicles, luxury cars, family cars, and small
commuter cars). These categories will reflect different
pricing levels as well as different pricing
strategies and market conditions. A further dimension
may be to cross-classify by the type of market
(for example, sales to distributors, fleet sales, and
exports).
1.330 Then, from each of the major cells of the
matrix of vehicle category by market, a sample of
representative vehicles can be selected, with each
one representing a broader range of vehicles.
1.331 If explicit internal weights are to be used in
the construction of the lower-level indices (for example,
for motor vehicles), then the relevant sales
data for (i) the individual vehicles in the sample, (ii)
the wider range of vehicles being represented (that
is, as defined in the matrix of vehicle category by
market), and (iii) all vehicles should be collected
from the business for a recent period. This will enable
internal weights to be calculated for combining
the prices of individual product specifications and
the prices of different producers.
1.332 Ideally, initialization of a collection from a
business will be undertaken through a personal
visit. However, this is an expensive exercise, and
budgetary considerations may necessitate compromise.
Alternative, though less effective, approaches
to initialization include the use of telephone, Internet,
fax, and mail, or some combination of approaches.
At a minimum, the larger businesses and
those producing complex (for example, high-tech)
products and operating in changing markets should
be visited.
1.333 In cases where the products are unique and
not reproduced over time—for example, construction
industry output and many of the customized
business services—specification pricing is not feasible,
and alternative pricing techniques must be
used, often involving compromise. Possibilities include
model pricing, collecting unit values for reasonably
homogeneous components of a good or service,
input pricing, and the collection of charge-out
rates (for example, for a legal service).
1.334 Most national statistical agencies use mail
questionnaires to collect their producer prices. Collection
procedures include the design of tailored
forms incorporating the particular product specifications
for each sampled business and collection
control to facilitate the dispatch, mark-in, and follow-up
with the reporting businesses.
1.335 It is important that rigorous input editing
techniques are employed, and that any price observations
that do not appear credible are queried
(usually by telephone) and either confirmed with an
acceptable reason or amended. Input editing involves
analyzing the prices reported by an individual
business and querying large changes (editing
tolerances may be built into processing systems) or
inconsistent changes across product lines. An important
objective of the editing process is to ensure
that actual transaction prices are reported, inclusive
of all discounts, and to detect any changes in the
specifications.
1.336 If the price of a product has not changed
for, say, six months, it may be appropriate to contact
the business to make sure the prices reported
are not being automatically repeated.
1.337 Output editing, which is often an integral
part of calculating the lower-level indices (see Step
6), involves comparing the price levels, and price
movements, of similar products between different
businesses and discretely querying any outliers.
1.338 In undertaking these editing processes, reference
to other supporting price information is often
valuable. Examples include international commodity
prices (for example, London Metal Exchange),
exchange rates, press and wire service reports, and
general market intelligence obtained during the
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