Compiling the Primary Price indexes

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Producer and International Trade Price Indexes: Concepts, Sources and Methods
Reference period

Once a price movement for the elementary aggregate is determined, the resulting C-index price movement is used to price update the value aggregate associated with the elementary aggregate. The resulting measure is known as the price updated value aggregate (or current period value aggregate).

For a given elementary aggregate:

\(VA^t_{EA}=\frac{I^t_C}{I^{t-1}_C}\times VA^{t-1}_{EA}\)

where \(VA^t_{EA}\) is the current period value aggregate for the elementary aggregate in period \(t\)\(VA{_{EA}}^{t-1}\) is the previous period value aggregate, and \(I^t_C\) and \(I_C^{t-1}\)are respectively the current and previous period C-indexes for the elementary aggregate.

The price updated value aggregate is then used to determine the current period P-index for the elementary aggregate.

\(I^t_{P,EA}=\frac{VA^t_{EA}}{VA^{LINK}_{EA}}\times I^{LINK}_{P,EA}\)

where \(I^t{_p}\) is the current period P-index for the elementary aggregate in period \(t\)\(VA_{EA}{^{LINK}}\)is the link period value aggregate for the elementary aggregate and \(I^{LINK}{_{P,EA}}\) is the link period P-index for the elementary aggregate.

Once the current period value aggregates for all elementary aggregates are determined, the current period value aggregates for all higher level components of the index structure are calculated by summing the price updated value aggregates of their components.

Current period price indexes for any component in the aggregation structure are then calculated by price updating the link period P-index for the component. That is, for any component, the current period P-index is given by:

\(I^t_p=\frac{VA^t}{VA^{LINK}}\times I^{LINK}_{P}\)

where \(I^t{_P}\) is the current period P-index in period \(t\)\(VA^t\) is the current period value aggregate for the component, \(VA^{LINK}\) is the link period value aggregate for the component and \(I_P{^{LINK}}\) is the link period P-index for the component of the index (or aggregation) structure.

Calculating points contribution and points change

Points contributions are also calculated using the value aggregates. In any period, the points contribution of a component to the top level is calculated by multiplying the root index number for the period by the value aggregate for the component in that period and dividing by the root value aggregate for that period. This can be stated algebraically as:

\(PC^t_i=I^t{_{P,ROOT}} \times \frac{VA^t_i}{VA^t_{ROOT}}\)

where \(PC^t{_i}\) is the points contribution for component \(i\) in period \(t\)\(I^t{_{P,ROOT}}\) is the P-index for the root in period \(t,VA^t{_i}\) is the value aggregate for component \(i\) in period \(t\) and \(VA^t{_{ROOT}}\) is the value aggregate for the root of the index in period \(t.\)

Changes in points contribution for a component of a price index give an assessment of the component’s contribution to net price change. However, such a comparison is limited to periods between linking of price indexes. Comparisons of a component’s contribution to the index that cross a link period are comparing contributions on different weighting bases and therefore do not measure the contribution to net price change; any attempt at such comparison will confound change of weight with change of price.

Calculation of upper level price indexes is illustrated in Table 4.2. This table shows an input price index where products are classified by source (domestic and imported) and then by type of product. In Part 1 the P-index for period 1 is calculated. Part 2 shows the calculation of the percentage movement in the elementary aggregate C-index from period 1 to period 2. Part 3 shows how the current period value aggregates for period 2 are then derived and used to calculate the P-index for period 2.

Table 4.2 Example of aggregation of a price index
 Value aggregatesP-IndexElementary Aggregate C-Index Price Updated Value aggregate(Period 2)P-Index(period 2)
 Link PeriodPeriod 1Link PeriodPeriod 1Period 1Period 2% movement
Total inputs105,479133,610105.6133.7   152625152.7
Imports41,19844,909110.0119.9   47989128.1
Textile, clothing, footwear5,6825,750109.3110.6110.6109.7-0.8%5704109.7
Wood and paper products4,6544,753100.3102.4102.4106.33.8%4934106.3
Chemicals, plastic, rubber11,12710,74297.193.793.796.22.7%1102996.2
Fabricated products16,09917,885107.8119.7119.7120.70.8%18035120.7
Agricultural products562548119.9116.9116.9121.84.2%571121.8
Mining products3,0745,230103.2175.6175.6259.147.6%7717259.1
Domestic64,28188,701104.7144.5   104635170.5
Agricultural products28,03638,530107.9148.3148.3148.1-0.1%38478148.1
Electricity and gas11,16912,289110.0121.0121.0125.63.8%12756125.6
Forestry and logging1,4721,738113.0133.4133.4142.46.7%1856142.4
Mining products23,60436,144102.6157.0157.0223.942.6%51546224.0
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