Objective/scope | New index structure | Selecting the sample | Price collection
Objective, scope, conceptual base and coverage of the index
The main use of the business price indexes (BPIs) is for the deflation of National Accounts. The scope of the redevelopment project covers redevelopment of all outputs in the New Zealand economy, with the exception of non-market transactions.
The Producers Price Index (PPI) output indexes measure changes in the prices received by businesses for the goods and services they produce, and cover primary products, manufactured goods, revenue from renting and leasing, provision of services, capital work undertaken by own employees, and margins of goods purchased for resale.
The outputs collected for the PPI reflect price changes before the addition of any taxes and are generally the actual revenue received by a producer. This is generally known as the ex-producer (ex-factory, ex-farm) price.
The PPI input indexes measure price changes in the costs of production in the economy. They cover materials, fuels and electricity, transport and communication, commission and contract services, rent and lease of land, buildings, vehicles, plant, business services, and insurance premiums less claims.
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New index structure
The PPI indexes are based on the Australia New Zealand Standard Industry Classification 1996 (ANZSIC96).With the forthcoming implementation of ANZSIC06 in 2009–10, two structures have been created based on the ANZSIC96 and ANZSIC06 classifications. Changes which will occur under ANZSIC06 will be implemented after all industries have been redeveloped.
At the product level, the Australia New Zealand Standard Product Classification 2001 (ANZSPC01) replaced the Australia New Zealand Standard Commodity Classification 1993 (ANZSCC93).
The hierarchical building block structure developed during the 1995-1998 redevelopment has been amended to incorporate changes that will come into effect after ANZSIC06 is implemented.
An example of the new structure for the transport equipment manufacturing industry is included below.
The structure shown above clearly displays the flow-on effect of price movements in an industry. The increase in industry detail from the previous structure allows for easier recognition of the main contributors to the movement in a particular industry.
The PPI reweighting process has been improved in the new structure. The industry can now be reweighted on an annual basis using data from the Annual Enterprise Survey at the class level, improving the accuracy of the index in between redevelopments. Changes at the commodity level, which are carried out to maintain the representativeness of the commodity indexes, will occur during the redevelopments of the PPI.
The group level and most commodity indexes will not be published. However, any significant index movements occurring at these levels may be noted in the commentary of the PPI quarterly release. These indexes are also available on request, provided confidentiality and quality requirements are satisfied.
Redeveloped industries will continue to have an expression base/index reference of the December 1997 quarter (=1000). The price reference periods/calculation base for the redeveloped industries will vary according to the quarter in which they are implemented. The first stage of redeveloped industries has an expression base of the March 2006 quarter.
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Selecting the sample
The primary vehicle for collecting commodity data is through a commodity data collection (CDC) survey which is tailored to the specifications of each individual industry
The target population for the survey is all enterprises operating within New Zealand. This information was extracted from the Business Frame, a comprehensive internal database of all registered companies in New Zealand. The initial base for selecting firms is the Annual Enterprise Survey, which captures approximately 80-90 percent of New Zealand’s GDP. These two sources are further supplemented by information gleaned from businesses in each industry, media articles, industry associations, and company websites.
The guideline for the sample size of Statistics New Zealand business surveys is approximately 3,500.The total number of firms surveyed for each industry is estimated using each industry’s contribution to GDP. The enterprises selected to participate in the CDC survey are selected using purposive or judgement sampling, where the sample is selected on the basis of the knowledge and judgement of staff compiling the index. The nature of the purposive selection of units for all other industries will depend largely on the structure of each industry. If an industry is dominated by a few key firms, each of these firms will be approached. This is essential to ensure that the correct commodity mix is captured for their industry. For industries made up of a large number of small to medium size firms, it is important to select a number of representative firms to provide an adequate coverage of all the major commodities in their industry.
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Price collection
The PPI indexes measure price changes, over time, in broad sectors of the New Zealand economy. These encompass purchases and sales of a large number of different items at a wide array of prices. Due to complexities that would be involved in trying to cover every price available, it is necessary to adopt a sample approach-to price a sample of items from a sample of respondents.
When choosing the prices, product category and the specific type of product need to be considered. To ensure that prices collected are representative for a particular industry, it is important to be certain that firms selected for the pricing sample represent 60-80 percent of industry output. For each of the firms selected, 60-80 percent of their product categories have to be accounted for. Within those product categories, selected items to price should represent 60-80 percent of sales in each category.
Although these guidelines are applicable to the majority of redeveloped industries, they need to be amended in some instances. That includes cases where more than 80 percent of industry or product coverage is necessary to ensure that all representative commodities, as identified from the CDC survey results, are covered. Where robust data is available from alternative data sources, this is preferred as it minimises respondent burden.
In cases where 80 percent will yield a sample that is too large and would unduly burden respondents, fewer firms will be selected. In such cases, a few selected items are chosen to represent items exhibiting similar price movements.
Ideally, firms which are considered price setters, ie those firms that set prices for a product within the market, are included in the sample need to be included in the sample to ensure that the correct price movements are captured as they occur.
When selecting item prices to collect, the following criteria need to be considered:
- The item must be of a similar material and serve a similar purpose to the items in the regimen set.
- The item must be specific, so it can be described unambiguously, and available on a continuous basis so the price collected over a period of time is for an item of constant quality.
- The degree of homogeneity in an index determines the number of items that need to be collected for a particular index. A greater levels of homogeneity in the items requires smaller samples.