Producers Price Index: March 2009 quarter

Note about fuel in the PPI inputs indexes

Fuel is a component of all the PPI industry inputs indexes. For these indexes, there are variations in the types of fuel included, the source and frequency of price collection, and the timing of when price movements are shown. In a number of indexes, the current practice (in place for more than a decade) has been to 'lag' by one quarter the movements for diesel and heavy fuel oil. For example, diesel and heavy fuel oil price movements that actually occurred in the September 2008 quarter were shown in the PPI road transport inputs index for the December 2008 quarter. On the other hand, petrol and light fuel oil price movements used in the PPI road transport inputs index are not lagged. Price movements for petrol and light fuel oil that occur in a particular quarter are shown in the PPI road transport inputs index for that quarter.

Statistics NZ has been undertaking a rolling review of the PPI industry outputs indexes and is about to commence a review of the PPI industry inputs indexes. The review of the PPI industry inputs indexes will include reviewing and updating the relative importance of the goods and services (and associated price samples) included in the indexes. The review of the PPI inputs indexes will include:

• updating the relative importance of diesel, fuel oil, petrol and other goods and services included in the index
• reviewing the sources and types of fuel prices included in the index
• reviewing the practice of lagging diesel and heavy fuel oil prices by one quarter.

If a decision is made to remove the one-quarter lag for diesel and heavy fuel oil price movements included in the PPI industry inputs indexes, the removal of the lag would be implemented at a time when fuel prices are relatively stable, so as not to cause undue disruption to the long-term level of the time series, or to the latest quarterly or annual movements.

The affected indexes are listed below:

• Mining – PPIQ.SNB
• Manufacturing – PPIQ.SNC
• Paper and paper product manufacturing – PPIQ.SNC08
• Printing, publishing and recorded media – PPIQ.SNC09
• Non-metallic mineral product manufacturing – PPIQ.SNC12
• Transport and storage – PPIQ.SNI
• Road transport – PPIQ.SNI01
• Water transport – PPIQ.SNI03
• Air transport – PPIQ.SNI04
• Rail, other transport and storage services – PPIQ.SNI09
• Personal and other services – PPIQ.SNQ
• Paper, printing and publishing – PPIQ.SNX08.

Price index interpretation

Price indexes are used to measure the changes in the level of prices, not the actual level of the prices themselves. The Producers Price Index (PPI) measures prices relating to the production sector of the economy. By comparison, the Consumers Price Index measures prices relating to the household sector, and the Labour Cost Index measures prices in the labour market.

The PPI is made up of two types of indexes: the outputs index, which measures changes in the prices received by producers; and the inputs index, which measures changes in the cost of production (excluding labour and capital costs). The Farm Expenses Price Index (FEPI) measures price changes specific to the inputs into the farming industry.

PPI outputs index

The outputs index measures changes in prices received by producers.

The outputs index covers the prices of:

• primary products
• manufactured goods
• revenue from renting and leasing
• the provision of services
• capital work undertaken by own employees
• margins on goods purchased for resale.

The outputs index excludes:

• interest and dividends
• royalties and patent fees
• receipts from insurance claims
• government cash grants and subsidies
• goods and services tax (GST) and other indirect taxes.

These indexes are designed to measure price changes at a level corresponding to the prices received before the addition of commodity taxes or deduction of subsidies.

PPI inputs index

The inputs index measures price changes in costs of production, excluding labour and depreciation costs.

The inputs index covers the prices of:

• materials
• fuels and electricity
• transport and communication
• commission and contract services
• rent and lease of land, buildings, vehicles and plant
• business services
• insurance premiums less claims.

The inputs index excludes:

• wages and salaries (measured in the Labour Cost Index)
• capital expenditure/depreciation (measured in the Capital Goods Price Index)
• ACC levies, land tax, government licence fees, road user charges
• rates
• royalties, patent fees
• bad debts and donations.

GST is excluded when measuring input prices for 45 of the 47 industry input indexes. The assumption is made that those involved in activities in these industries are 'registered persons, or businesses' that provide 'taxable supply'. GST paid on intermediate consumption is recoverable under the GST credit offset system and therefore is effectively not part of the ultimate input price. Exceptions include the finance, and the ownership of owner-occupied dwellings indexes, which include some 'GST exempt' and non-recoverable GST activities. Interest costs are excluded because they are regarded as a cost of capital and not as a payment for goods or a service.

Government charges are excluded when they are used to raise tax revenue rather than the payment for goods or a service purchased from the government. This is consistent with the System of National Accounts.

Farm Expenses Price Index

The Farm Expenses Price Index (FEPI) measures price changes of fixed inputs of goods and services to the farming industry. It does not fully measure changes in the production costs of farming. This is because production costs are not solely dependent on price movements, but are also dependent on factors that affect productivity, such as technological advances, management efficiency and climate fluctuations.

Capital expenditure and depreciation are not covered. (For price indexes of capital expenditure, refer to the Capital Goods Price Index.)

The Farm Expenses Price Index is now produced for the March quarter of each year only.

Coverage

The indexes are calculated quarterly from price quotes, which are collected mainly by postal survey. Approximately 13,000 individual commodity items are surveyed from about 3,000 respondents. Prices are generally collected each quarter, according to those prevailing on the fifteenth of the middle month of the quarter being measured. Prices may be obtained monthly or annually, depending on the nature of the item.

Calculation

The PPI and FEPI are Laspeyres base-weighted price index series. The weightings are determined by the relative importance of commodities and businesses within the industry or industry group. Information from various surveys and censuses and other sources is used to determine the weightings. Further information about this is available on request.

Data quality

All care has been used in the surveying, processing, analysing and extracting of data for the PPI. However, all data are subject to possible statistical uncertainty. These variations may result, for example, from uncertainty introduced during non-response imputation, reporting difficulties for respondents, or errors made during processing survey results.

Statistics New Zealand adopts procedures to detect and minimise avoidable variation and eliminate errors, but they may still occur and they are not quantifiable. At higher levels of aggregations, much of the individual variability often cancels out. The PPI data have been checked for the published indexes, and also for underlying indexes, to identify any remaining uncertainty and detectable errors. These are corrected or re-estimated, where possible.

Ongoing work to redevelop, reweight and enhance price indexes has the potential to change the underlying indexes. Accordingly, these data may be subject to revisions in the future.

Industry classification

The PPI inputs and outputs indexes cover all the major market industry groups as defined by the Australian and New Zealand Standard Industrial Classification 1993 (ANZSIC). Index numbers for industry indexes based on this classification are available from the June 1994 quarter.

The all industries inputs index is made up of 47 industry indexes. Outputs indexes are not available for public administration and defence, education, health and community services, cultural and recreational services, and personal and other services industries, as reliable estimates of output prices have yet to be developed.

Customised price indexes

Statistics NZ has a large number of unpublished sub-industry and representative commodity price indexes. These indexes are available at a small charge to cover dissemination costs.

Back series of indexes

Statistics NZ will provide tables of the complete back series of the current PPI and FEPI indexes on request.

Price index development

The following is a detailed analysis of the output indexes affected by redevelopments that took place in the March 2009 quarter.

Construction trade services

The index in this publication that is affected by the change is:
PPIQ.SUE – Construction.

Information used to redevelop this index is based on the Annual Enterprise Survey and companies involved in the industry.

The most significant change since the industry was last redeveloped in 1997 has been a decrease in electrical, fire and security installation work, whilst a general increase in all other trades occurred. This change can be attributed to more accurate classification of the construction trades.

Note: percentages may not sum to 100 due to rounding.

For further information on the redevelopment, please contact Patricia Jennings at info@stats.govt.nz.

More information

For more information, follow the link from the Technical notes of this release on the Statistics New Zealand website.

Copyright

Information obtained from Statistics NZ may be freely used, reproduced, or quoted unless otherwise specified. In all cases Statistics NZ must be acknowledged as the source.

Liability

While care has been used in processing, analysing and extracting information, Statistics NZ gives no warranty that the information supplied is free from error. Statistics NZ shall not be liable for any loss suffered through the use, directly or indirectly, of any information, product or service.

Timing

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