PRODUCER PRICE INDEX FOR INDUSTRIAL PRODUCTION: QUALITY REPORT Definition. Producer price index (PPI) for industrial production is an indicator reflecting changes in prices for products manufactured in Lithuania and sold on the Lithuanian market and nonLithuanian market over a definite period of time while maintaining the weight structure of the reference period. Periodicity. PPI is computed and published once a month. Indicator produced by the Price Statistics Division of the Department of Statistics to the Government of the Republic of Lithuania (hereafter – Department of Statistics). Data sources. The PPI is computed on the basis of the data and information of a monthly survey of the prices for representative products of selected enterprises engaged in industry production. The source of information for the production of the weightings structure is the statistical data on the volumes of the sold industrial production in value terms excluding the value added tax (VAT) and the excise duties. Data collection techniques. The statistical data are collected by using the paper-form or electronic questionnaires approved by Orders of the Director General of the Department of Statistics. The selected enterprises for the survey of prices submit the information on the representative products in the annual inquiry questionnaire for the selection of the sold industrial products KA-09, and the data on the actual sale prices are submitted in a monthly report KA-08 to the Department of Statistics by mail, fax, e-mail or website. In case the data are submitted by telephone, subsequently they are confirmed by submitting a completed form by mail, fax, e-mail or website. METHODS USED Calculation methods. The PPI is calculated according to Laspeyres’ formula. The PPI is calculated from the lowest level, i.e. the representative products, to the highest level – the price index for the entire industry production. The lowest level price index is calculated as a ratio of the reporting month price to the base month price multiplied by 100. The lowest level price indices are then aggregated into the higher level price indices in accordance with Laspeyres’ formula using the base weights generated starting from the highest Classification of Economic Activities (NACE) level and completing with the lowest level, i.e. individual items. Each higher level index is calculated as an weighted arithmetic average of the lower level price indices. The product price indices are grouped into 347 item codes of the Products, Goods and Services Classification (PGPK), 130 classes, 76 groups, 28 divisions, 16 subsections and 3 sections of the NACE, as well as the five Main Industrial Groupings (Energy products, Intermediate goods, Capital goods, Durable consumer goods and Non-durable consumer goods, and price indices for total industrial production. The price indices for industrial output sold in the Lithuanian market and sold in the non-Lithuanian market are calculated separately. The overall industrial production price index is computed as the weighted arithmetic average of these price indices.
2 Adjustments methods for quality differences. Where the production of the selected representative item has been terminated or its output has been considerably reduced, an item identical, or similar in its quality, technical and other characteristics to the item surveyed is selected for the survey. Where the quality of the new selected item is considerably different from that of the original surveyed item the impact of the change in quality upon the increase or decrease of the price shall be adjusted. In order to maintain the comparability between the prices of the original and the new production items, it shall be necessary to ensure the coherence of the product quality. This is performed by adjusting the price of the base period of the original production item and eliminating the influence of the change in quality. Two quality coherence and price adjustment methods are used: - overlap method. Under this method the prices of the original and the new items are collected within the same month that is deemed the linking month for the backward price index series of the original item and the forward price index series of the new item. It is considered that the price change before the linking month is represented by the change in the price of the original item and that after the linking month is represented by the change in the price of the new item. The difference between the prices of the original item and the new item in the linking month is considered as the change in the price caused by he change in quality and does not influence the time series. - explicit adjustment method. In this case the change in the quality upon the price is measured by specialists of the enterprise. The employee of the enterprise responsible for the submission of the data shall enter in the report the impact of the change in quality upon the change in the price in percent. Upon receipt of this information the specialists of the Price Statistics Division, having regard to the impact of the change in quality, adjust the price of the base period, having eliminated the impact of the change in quality. Minor changes in quality are disregarded. In April 2007, 0.2% of prices were adjusted due to the changes in the quality of items. Compliance with the EU requirements. The PPI complies with the EU requirements as defined in four regulations of the European Parliament, the Council and the Commission. Main uses. The PPI is used for the calculation of the macroeconomic indicators at comparative prices, analysis of economic development, and the assessment of inflation processes in industry. Main users. National public institutions, the Bank of Lithuania, the European Central Bank, the EU institutions, other international organisations, mass media, research and business community. ACCURACY Selection of product groups (codes). Purposive sampling is used, i. e. the product groups (codes) are selected, of which the volumes of the production sold accounts for a major part of the sold output of the corresponding industry activity (not less than 50%). Selection of enterprises. The enterprises are selected by purposive sampling under which the sample is compiled of enterprises whose production sale volumes account for a major part of the sold output of the corresponding groups of products (code). Within each product group the total volumes of the output sold by selected enterprises must account for not less than 50% of the total volumes sold of the surveyed product group (code). The method ensures that the selection includes large, medium-sized and small enterprises of different ownership forms engaged in industry production.
3 Selection of representative products. The products are selected by way of purposive sampling. Each enterprises selected for the purpose of the price survey is submitted a list of product groups (codes) selected for the price survey, of which the enterprise selects and describes specific representative products the prices whereof are further provided to the Department of Statistics. The selected products must be representative, i.e. the share of the sale of such products must be the largest within the group of homogeneous product group (code), the production of such products must be fully introduced and they must be in production for an extended period of time.
Coverage PPI geographical coverage – shall be the economic territory of the country. The economic territory is represented by the geographical territory of the country administered by the Government of the country, with a free movement of persons, goods and capital. Industrial activity kind coverage: the PPI covers mining and quarrying, manufacturing, electricity, gas and water supply NACE Sections C – E). For the 2007 price index calculation the selected enterprises included 130 out of 212 four-digit (class) kinds of activities. Product group (code) coverage: for the purpose of the calculation of the 2007 price index, the selection included 347 product groups (codes) of which 277 product groups (codes) sold in the Lithuanian market, and 225 product groups (codes) sold in the non-Lithuanian market. Out of the total number of groups (codes) 155 groups (codes) represent the products sold both in the Lithuanian market and outside Lithuania. The volume of sales of the selected product groups (codes) accounts for about 83% of the total volumes of sale of industrial production in 2005, 83% of sales in the Lithuanian market and 84% of sales in the non-Lithuanian market. In April 2007, 1495 price quotations were collected from enterprises, of which changes were identified in respect of 40% of the prices. Enterprise coverage: In 2007, 436 enterprises of different ownership forms were selected for the price survey. Out of the total number of enterprises 361 enterprise submitted the prices of the products sold in the Lithuanian market, and 225 enterprises submitted the products sold in the market outside Lithuania. The submissions by 150 enterprises included prices of products sold both in the Lithuanian and foreign markets. Estimation of missing prices. On average, every month in view of different reasons (seasonality, production or sale interruptions, winding-up of an enterprises, termination of the production of an item) the data on about 5% of prices are not collected. For seasonal products (apparel, foot-wear, flax fibre, canned fruits and vegetables, etc.) the last recorded price is repeated for the months when such products are not produced and not marketed. The seasonal price index adjustment is not performed. For the months when an enterprise does not provide the data on the product price the price is imputed by employing the following methods: – the price of the previous month may be repeated provided the price of the same product in other enterprises have not changed or have changed very inconsiderably;
4 – the missing price may be imputed by using the price index computed with reference to the prices of other products of the same industry activity kind. This computation is provided by the software tools and performed automatically. In April 2007, for a variety of reasons, 4.0% of prices were not submitted, of which for seasonality reasons 0.6% of prices were repeated and 3.4% of the total prices were assessed. Selection of replacement items. In the event the production of the representative product is discontinued, for the purpose of the price monitoring the enterprise may substitute the product concerned by another product of the same PGPK code identical to or similar with the original products by its quality, technical or other characteristics. In such case the enterprise is obligated to submit the information on the characteristics of the new representative product, changes in the quality, etc. Where such changes are minor, the price of the new representative product of the reporting month shall be directly compared with the price of the original product. In the event the new product is significantly different from the original product, the quality coherence and base price adjustment operations shall be performed. In April 2007, there were not the substitute products submitted by enterprises. Accuracy of the PPI time series and price changes computations. The PPI base period is 2000 (2000 = 100). On the basis of this base period the price indices are computed taking into account all decimal numbers. The price indices obtained are rounded to four decimals. The price indices of this accuracy are submitted to the data base of the Department of Statistics and further to the Eurostat. The monthly, annual, average annual and price changes of other periods are computed by using such PPI time series and published in the form rounded to one decimal. TIMELINESS AND PUNCTUALITY Timing of price observation. Council Regulation (EC) No. 1165/98 concerning short-term statistics establishes that PPI must be calculated and prices must be collected once a month. Commission Regulation (EC) No. 588/2001 concerning short-term statistics as regards the definition of variables recommends to collect the prices as of selected day in the middle of the reporting month. Where such data on the prices are not available, the average monthly prices may be used. Enterprises record and submit the actual sale price of the products as of the 15th of the reporting month. In certain cases upon agreement with the Department of Statistics, enterprises are allowed to provide the average monthly price computed according to weighted arithmetic average formula. Punctuality. All publications and information are submitted in accordance with the approved schedules. The PPI in April 2007 was published in special press release of May 8, and will be submitted to the Eurostat on May 16. ACCESSIBILITY The PPI is published in a special press release on the 5th working day after the end of the reporting month (in the website of the Department of Statistics at: http://www.stat.gov.lt/lt/pages/view/?id=1273); in the monthly “Information about changes in producer prices for industrial production” (in the website of the Department of Statistics at http://www.stat.gov.lt); monthly release “The Economic and Social Development in Lithuania” (in
5 the website of the Department of Statistics at: http://www.stat.gov.lt); quarterly bulletin “Consumer and producer price indices”; statistical publication “The Statistical Yearbook of Lithuania”; in the database of the Department of Statistics http://db.stat.gov.lt/sips/Database/sipslt/databasetree.asp; Eurostat news release „Euro-indicators“ (in the Eurostat website http://europa.eu.int/comm/eurostat/); Eurostat publication „Statistics in focus. Developments for output prices“ (Eurostat website at: http://epp.eurostat.ec.europa). The information published includes the price changes within the month, for the period from the beginning of the year, within 12 months, index time series and weights, used for the index calculations by kind of economic activities and Main Industrial Grouping. In addition to the indices indicated, the Eurostat database also includes monthly domestic output price indices 2000 = 100 as well as monthly, annual rates of price change on the basis of the 2000 base period for the total industrial production, production of manufacturing and total industrial production by MIG. COMPARABILITY Total length and characteristics of time series. The mining and quarrying and the manufacturing production (NACE Sections C and D) PPI has been calculated since 1992. Starting from 1996, additionally PPI calculations were produced for electricity, gas and water supply (NACE Section E) and the gross PPI for Sections C–E. Price indices are computed according to Laspeyres’ formula, on the basis of the NACE classification, prices are provided excluding VAT and excise duties. In 1998–2002, the PPI time series were revised and recalculated. The currently available PPI time series are comparable since 1998. The price indices of the reporting year are related to the price indices of the previous years on the basis of the chain method. The linking period is December of previous years. COHERENCE The PPI is compatible with the PPI computed by other EU Member States in accordance with he requirements of the regulations of the European Parliament, Council and the Commission. No other Lithuanian institutions produce this indicator.
Head of the Price Statistics Division
Nadiežda Alejeva