Service Producer Price Indices — Technical Manual

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References

International methodological handbooks used as basis

The presented technical manual is elaborated by the National Statistics Office of Georgia according to the internationally acclaimed methods and practice and is based on the following handbooks:

"Producer Price Index Manual: Theory and Practice", International Monetary Fund, 2004;
Responsible organisations: International Labor Organization (ILO), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations Economic Commission for Europe (UNECE), and World Bank.
https://www.imf.org/…
"Methodological Guide for Developing Producer Price Indices for Services", OECD, Eurostat and others, 2005;
Responsible organisations: European Commission, Organisation for Economic Co-operation and Development (OECD), European Statistical Office (Eurostat).
https://ec.europa.eu/…

1

Introduction

1.1 Service Producer Price Indices and Their Use

The presented technical manual combines methodological principles that are used in calculating service producer price indices (SPPIs). Service Producer Price Indices include the following indicators: Producer Price Index for Transportation and Storage Services, Producer Price Index for Telecommunication Services, and Producer Price Index for Accommodation and Food Services.

Producer Price Index for Transportation and Storage Services measures the average price level of the services provided by organisations producing passenger and freight transport services as well as cargo storage and warehousing services, compared to the reference period.

This index covers land, water and air transport services for freight and passenger transportation, as well as warehousing and storage services, corresponding to divisions 49, 50, 51 and 52 of the Transportation and Storage Services section (Section H) of the Statistical Classification of Products by Activity (CPA 2008).

Producer Price Index for Telecommunication Services measures the average price level of telecommunication services compared to the reference period. It covers wired, wireless, satellite and other telecommunication services, corresponding to division 61 of the Information and Communication Services section (Section J) of CPA 2008.

Producer Price Index for Accommodation and Food Services measures the average price level of services provided by hotels, cafes and restaurants compared to the reference period, corresponding to Section I of CPA 2008.

Producer price indices for services are used for the following purposes:

The indices have an important role in deflating different economic indicators;
The indices are used for indexation of contracts in both public and private sectors;
The indices are analytical instruments for researchers and representatives of the business sector.

1.2 Coverage of Service Producer Price Indices and the Observable Prices

For the calculation of producer price indices for services, prices are collected for services provided by organisations across the country. In case of transportation and storage services, the observable price is the cost of service provided by the transport organisation or cargo storage organisation during the specified period. The observable price of telecommunication service is the price of service provided by the telecommunication organisation in the specified period.

Data for passenger transport service prices are obtained from the survey of consumer prices and tariffs. The same method is used for compiling the producer price index for accommodation and food services.

2

Sampling of Observable Organisations

The observable service organisations are selected based on statistical data of enterprises. Selection is carried out by turnover, mostly using the cut-off method (the largest organisations are selected until coverage of at least 80% of the industry is ensured).

For the Transportation and Storage Services PPI, all large organisations relevant to divisions 49, 50, 51 and 52 of Section H of CPA 2008 are selected, while small and medium-size organisations are sampled selectively.

For the Telecommunication Services PPI, the sample consists of all large organisations relevant to Division 61 of Section J of CPA 2008, while small organisations are sampled selectively.

After sampling, organisations are surveyed to determine the characteristics of services. For this purpose, additional electronic questionnaires are provided at the start of each year, requiring the organisation to indicate the top four service types provided stably over the previous year and the percentage share of each service in the total services provided. Detailed specifications are determined for each service.

Following the specifications is the most important part of price registration, since the monthly recorded price difference should be caused by pure price change, rather than changes in service characteristics. The sample of organisations is updated annually.

3

Price Collection Fieldworks

During price collection fieldworks, the representative of the organisation fills the questionnaire published on Geostat's website. The price collection fieldworks are conducted from the 1st to the 8th of the month following the reporting period.

For freight transport services, the questionnaire contains: four freight transport directions, the type of cargo carrier, type of cargo, measurement unit, prices in the reference and previous months, and reasons for price change.

For warehousing and storage services, the questionnaire contains: four types of selected storage equipment, type of goods to be stored, measurement unit, prices in the reporting, previous and current months, and reasons for price change.

For telecommunication services, the questionnaire contains: four telecommunication service types, measurement unit, prices in the reference, previous and current months, and reasons for price change.

The base price for a service is registered at the beginning of the reporting year and remains unchanged during the whole year.

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Information about service prices provided by organisations is confidential and protected by the General Administrative Code of Georgia and Article 28 of the Law of Georgia on Official Statistics. Persons registered in the Register of Entrepreneurial and Non-entrepreneurial Legal Entities are obliged to present available information upon written or electronic request from GeoStat.

4

Validation Procedures

Validation procedures for service producer price indices are conducted in two stages:

At the first stage, validation takes place simultaneously with the price registration fieldworks. In case of price change, the person responsible for filling the questionnaire is required to define the reason by comment. After data are sent to the central office, a responsible employee conducts analysis and logical control.

At the second stage, accuracy of prices that are extremely deviated from the previous month is checked after calculating the indices.

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The index is considered reliable after passing the above-mentioned validation stages.

5

Weights

Weights for indices are calculated based on business statistics data. The obtained weights represent the share of a particular type of service in the total value of this type of services across the country.

The weights are updated annually, based on revenues received by selected organisations for services provided in the t-2 period. The list of services included in the index may also be changed while updating the weights.

6

Price Imputation Techniques

If in the reporting month no price is recorded for one of the services, one of the following price imputation methods is applied:

Method 1. For example, if there is no price recorded in April for service A, the imputed index for this service will be the index of the group which includes this service. The group index is calculated using actual price indices of services in that group (see Table 1).

Table 1.

Service	Weight	Base Price	March Price	April Price	Ratio (Mar/Dec)	Ratio (Apr/Dec)
Service A	0.051	4.55	4.50	—	4.50/4.55=0.99	1.15*
Service B	0.032	5.20	5.20	5.50	5.20/5.20=1.00	5.50/5.20=1.06
Service C	0.067	5.00	4.50	5.50	4.50/5.00=0.90	5.50/5.00=1.10

* Imputed index

In April, the imputed index for Service A is calculated as follows:

Calculation — Method 1 Group long-term index (Apr) = 1.06\times0.032/(0.032+0.067) + 1.10\times0.067/(0.032+0.067) \approx 0.34+0.74 = 1.08 Group long-term index (Mar) = 1.00\times0.032/(0.032+0.067) + 0.90\times0.067/(0.032+0.067) \approx 0.32+0.61 = 0.93 Group short-term index (Apr) = 1.08/0.93 \approx 1.16 Imputed long-term index for Service A = 1.16 \times 0.99 \approx 1.15

Method 2. If in the reporting month no price is recorded for any service within a CPA group (3-digit level), the imputed index will be calculated using the carry-forward (price repeating) method, rather than the upper-level group's index.

7

Quality Adjustment

If in the reporting period an organisation stopped providing the observable service but started providing another similar service, it is possible to replace the old with the new service.

If the characteristics of the observable service have changed but comparability criteria are not violated, it is allowed to compare old and new services. It is important that price change caused by quality change is not reflected in the index.

In order to ensure comparability of prices for old and new services, a quality adjustment method should be used, for which a conditional base price is calculated using the following methods:

Case 1 — Qualitative Difference is Known

If the replacement service is qualitatively different from the previous month's service and the value of the qualitative difference is known (Table 2):

Table 2.

Service	Base Price	March Price	April Price	Qual. Difference	Ratio (Apr/Dec)
Service A	4.55	4.50	—	—	—
Qual.-diff. Service B	5.86*	—	8.50	1.30	8.50/5.86≈1.45

* Imputed base price

Calculation — Case 1 Base Price = (4.50 + 1.30) / (4.50/4.55) \approx 5.86

Case 2 — Previous Month's Price for Replacement Service is Available

If it is possible to record the previous month's price for the replacement service, the base price is calculated using that price and the previous month's index (Table 3):

Table 3.

Service	Base Price	March Price	April Price	Ratio (Mar/Dec)	Ratio (Apr/Dec)
Service A	4.55	4.50	—	4.50/4.55≈0.99	—
Replacement Service B	5.26*	5.20	5.50	—	5.50/5.26≈1.05

* Imputed base price

Calculation — Case 2 Base Price = 5.20 / (4.50/4.55) \approx 5.26

Case 3 — Both Price and Quality Difference are Unknown

If the price enumerator discovers that Service A will no longer be sold, and it is impossible to get information on previous month's price and value of qualitative difference for Replacement Service B, the entire difference between Service B's current price and Service A's previous price is treated as a qualitative difference. The imputed base price is calculated based on the current month's index and Service B's price (Table 4).

Table 4.

Service	Weight, %	Base Price	Mar. Price	Apr. Price	Long-term Index (Mar)	Long-term Index (Apr)
Service A	0.051	4.55	4.50	—	4.50/4.55≈0.99	—
Replacement Service B	0.051	6.09**	—	7.00	—	7.00/6.09≈1.15*
Service C	0.032	5.20	5.20	5.50	5.20/5.20=1.00	5.50/5.20≈1.06
Service D	0.067	5.00	4.50	5.50	4.50/5.00=0.90	5.50/5.00=1.10

* Imputed long-term index ** Imputed base price

Calculation — Case 3 Group long-term index (Apr) = 1.06\times0.032/(0.032+0.067) + 1.10\times0.067/(0.032+0.067) \approx 1.08 Group long-term index (Mar) = 1.00\times0.032/(0.032+0.067) + 0.90\times0.067/(0.032+0.067) \approx 0.93 Group short-term index (Apr) = 1.08/0.93 \approx 1.16 Imputed long-term index for Service A = 1.16 \times 0.99 \approx 1.15 Imputed base price for Service B = 7.00 / 1.15 \approx 6.09

8

Calculation of Service Producer Price Indices at Different Levels

8.1 Calculation of the Lowest Level Index

An index calculated for each service produced by an organisation is the lowest level index for SPPI. Graph #1 illustrates the structure of the Transportation and Storage Services PPI, where the price indices for services A, B and C are the elementary (lowest level) indices. The lowest level index, compared to the price reference period, is obtained from the ratio of reporting (t) and reference period service prices:

Lowest Level Index I i t/0 = p i t / p i 0 where: i — a service for which a comparable price is registered I i t/0 — lowest level index for service i in reporting period t, compared to price reference period p i t — price of service i in period t p i 0 — price of service i in the price reference period

Graph #1. The structure of the Transportation and Storage Services Producer Price Index

Graph #1 — Transportation and Storage Services SPPI Structure

8.2 Service Producer Price Index for Separate Groups and Sections

Long-term producer price indices for services for the whole sections compared to the price reference period are calculated using the following Laspeyres-type formula:

Laspeyres Index Iᵗ₀ = \sum Iₐᵗ₀ \times sₐᵇ Iₐᵗ₀ — lowest level long-term index for service i compared to price reference period (0) sₐᵇ = (pₐᵇ\cdotqₐᵇ) / \sum(pₐᵇ\cdotqₐᵇ) — weight of service i in the weight reference period, where \sumsₐᵇ = 1 pₐᵇ — price of service i produced by sampled enterprise in weight reference period (b) qₐᵇ — quantity of service i produced in weight reference period (b)

The same formula is used for all upper-level indices. Short-term index compared to the previous month is obtained from the ratio of long-term indices in the reporting and previous months, calculated relative to the price reference period.

8.3 Chain Index

During annual update of samples in December, prices are collected for services in both old and new samples. This enables chain-linking of indices calculated for two different samples, allowing long-term reference period indices to be maintained notwithstanding changes in weights.

Table 5. Chain index calculation

12.2015=100	12.2016=100
12.2016: I₁₂₁₆/₁₂₁₅ = ∑Iᵢ₁₂₁₆/₁₂₁₅×wᵢ = 106	12.2016: I₁₂₁₆/₁₂₁₆ = ∑Iᵢ₁₂₁₆/₁₂₁₆×kᵢ = 100
X₁ = ?	01.2017: I₀₁₁₇/₁₂₁₆ = ∑Iᵢ₀₁₁₇/₁₂₁₆×kᵢ = 102

Chain-linking calculation 106/X₁ = 100/102 X₁ = 106 \times 102/100 \approx 108 Also: I₁₂.₂₀₁₆/₁₂.₂₀₁₅ \times I₀₁.₂₀₁₇/₁₂.₂₀₁₆ = 106 \times 102/100 \approx 108

9

Data Dissemination

Every month the time series for producer price indices for services are published on Geostat's website compared to the following base periods: previous month, the same month of the previous year, 12-month average over the previous 12-month average, and the long-term basis. The published indices are rounded to four digits and are final data. Corresponding graphs of time series data are also attached.

Additionally, press releases for producer price indices for services are published through Geostat's website on a monthly basis. They contain information about monthly and annual index rates, as well as contributions of groups to index formation. Press releases also include different time series graphs.

The data are also available through PC-Axis — a complex data dissemination system that gives users the opportunity to obtain different types of needed information in different formats (text, tables, graphs, etc.) from www.geostat.ge. Producer price indices for services are also disseminated through an Android application.

Graph #2 illustrates the stages of the service producer price index calculation process and their periodicity.

Graph #2. Stages of calculation of service producer price indices