Calculating the PPIs and ITPIs in Practice
This section of the publication explains the practical application of the methodology explained above in the technical methodology section of this release for the quarterly compilation of the Producer and International Trade Price Indexes.
Defining elementary aggregates
The first stage of the compilation process is to estimate the elementary aggregate values from a sample of prices. The elementary aggregate values take the form of a price index, and they are then averaged to obtain higher level indexes using the relative values of the value aggregates for the elementary aggregates as weights.
Elementary aggregates are constructed by grouping homogeneous individual products and transactions.
Groups may be formed from products in various regions of the country or from the country as a whole.
Likewise, elementary aggregates may be formed from different types of providers or from various sub-groups of products. The key points in constructing an elementary aggregate are:
- Elementary aggregates consist of groups of products that are as similar as possible in terms of price determining characteristics (i.e. the group of products is homogeneous).
- They consist of products that may be expected to have similar price movements. The objective should be to try to minimise the dispersion of price movements within the aggregate.
Each elementary aggregate, whether relating to the whole country, a region, or a group of providers, will typically contain a large number of individual products. In practise, only a small number of products can be selected for pricing. When selecting the products from period to period, the following considerations are taken into account:
- The transactions selected are ones whose price movements are believed to be representative of all the products represented by the elementary aggregate.
- The number of transactions within each elementary aggregate for which prices are collected should be large enough for the estimated price index to be statistically reliable and representative of the product sampled. The minimum number required will vary between elementary aggregates depending on the nature of the products and their price behaviour.
- The objective is to try to track the price of the same product over time for as long as possible, or as long as the product continues to be representative. Therefore, the products selected are ones that are expected to remain on the market for some time so that like can be compared with like.