Prices Patrick Kelly

Seminar on Developing a programme for the implementation of the

2008 SNA and supporting statistics

17-19 October 2012Pretoria, South Africa

Contents

1. Structure

2. Overview of the current PPI

3. Planned changes to the PPI

4. Overview of the current CPI

5. Independent peer review of the CPI

6. Planned changes to the CPI

7. HCPI and ICP

Price and Employment Statistics

Consumer Price Index

Prices Methodology and Research

Quarterly Employment

Statistics

Producer Price Index

PPI Development

Field operations

Data operations

Compilation &

services collections

Quality and performance management

Quality Audits

Methodology and research

Analysis and

compilation

Data collection

Sample maintenance

Analysis and

compilation

Data collection

Structure

PPI

PPI overview

• The South African PPI, consists of three parts namely domestic output of South African Industry Groups, exported commodities and imported commodities.

• Domestic output includes the value of all products produced within the boundaries of South Africa, irrespective whether it is exported or used in the domestic market. Imports are not included in this index.

• For the Domestic output (including exports) and Import tables respectively, prices are measured, at the first supply phase, by South African producers, and at the first purchasing phase, where the goods enter South Africa.

PPI Overview

2009: Reweighting of the PPI- Change to VA weights from national accounts- Aggregation on SIC- Output PPI, with aggregation of all industries- Publish PPI, Exports, Imports and Construction indices- Calculation remained the same; lower level Jevons; aggregation Young

2013: Reweighting of the PPI

Planned changes to the PPI

Producer Price Index

• Initiated project to revamp PPI

• Aims of project:› Align with international practices› Align with the system of national accounts

New format of PPI

• No aggregate PPI

• 5 PPIs for domestic output – stages of production concept

› Agriculture, forestry and fishing› Mining and quarrying› Electricity and water› Intermediate manufactured goods› Final (finished) manufactured goods – new headline

Weights

• Basis of PPI weights› Industry level based on 2011 value-added in the

national accounts› Supply and use table splits manufacturing into

intermediate or final output› Product level uses Stats SA large sample surveys

(LSS) of industries and other industry data

• Annual refresh of PPI weights› Industry weights to be updated each year from the

annual national accounts› Product weights to be updated annually based on

available information. › Chain linking of indices between years

Classification and products

• Classification› PPI is and will be published according to SIC› Lower level classification – Central product

classification (CPC) updated from v1.1 to v2.› No significant impact from change in versions

• Product list (basket)› Products selected on importance to each industry› Extensive visits to industry associations› Old basket has over 800 products› New basket has 273 products› 63 are new and 210 are in both baskets› Allows for more price observations per product

Base year and time series

• Base year› Price reference period = 2012

• Time series› Due to substantial changes, the official time series

will be broken› Backward indices for new series to January 2012

and indicative time series using historical prices but new format and weights to January 2009

Construction indices

• Tables of selected building materials (11 and 12)› Mainly used for contract escalations› Small overlap with main PPI› No immediate changes to tables are planned› Steering committee of major industry associations

to be established› Committee to consider changes to weights and

product mix

Unit Value Indices – Exports and Imports

• Unit value indices (UVI) for exports and imports

› Based on customs data› Weights = total value of goods traded› Price changes from value/quantity each

month› Import and Export UVI publish 2013

Further improvements

• Behind the scenes enhancements› New database and capturing system› Improved data collection methods and processes› Substantially higher number of prices per product› Improved quality controls

• Services PPIs› Big gap in coverage of prices in economy› Research on these to begin following publication of

new PPI› Timing governed by data availability – mainly LSS› Construction services come first

CPI

CPI overview

• The CPI is a current social and economic indicator that is constructed to measure changes over time in the general level of prices of consumer goods and services that households acquire, use, or pay for.

• The South African CPI has two equally important objectives:1. To measure inflation in the economy so that

macroeconomic policy is based on comprehensive and up-to-date price information and to provide a deflator of consumer expenditure in the expenditure national accounts.

2. To measure changes in the cost of living of South African households to ensure equity in the measures taken to adjust wages, grants, service agreements and contracts.

CPI Overview

2005: Field collection

2009: Reweighting of the CPI- Change to COICOP- Change of weights and base year- Basket reduced from approx 1200 to 400 products- Change in measurement of owner occupied housing- Break in the series - Calculation remained the same; lower level Jevons; aggregation Young

2010: Drop smaller collection areasImproved publication timing

2013: Reweighting of the CPI

Plans for reweighting of the consumer price index

Weights• Reweighting and rebasing to be implemented in

January 2013

• Income and Expenditure Survey –› 12 month survey› Fieldwork completed in August› Processing nearing completion› Methodology similar to 2005/6 survey (Diary and

recall)› 2 week survey period

• IES to be adjusted for food, alcohol and tobacco, and tourism expenditure(where necessary) using admin and industry data

• Weights to be price updated to account for price changes between IES and implementation

Basket

• Baskets for each primary, secondary and rural area (currently per province) – improve relevance and number of price observations

• Basket will be completed by September 2012

Rebasing and linking

• Price reference period (base year) – 2012

• Time series to be maintained

• Extensive resources to be provided to users› Detailed weights and basket documents› Updated Methods and sources document› Explanation of linking, rebasing, reweighting methods› Paasche and Fischer Indices for the period 2008 to

2012

Rural CPI

• Part of the total country CPI

• Currently use rural expenditure weights and prices from secondary urban areas to compute index

• New IES question asks location of purchase

• Can map area of purchase to relevant area price index

• Will collect food prices in rural areas – experience of two years of rural collection for National Agricultural Marketing Council

• Introduce new rural table

Informal sector

• CPI currently only covers formal sector

• New IES question on type of vendor

• Food prices to be collected from informal vendors

• To be included in index from 2013

Additional Indices

• Core inflation - Trimmed mean› Excludes highest and lowest price changes each

month› Assists in inflation analysis for monetary policy

purposes

Methodological improvements• Quality Adjustments

› Current practice: strict like-on-like comparison› Aim of QA is to link price changes between

substitute goods when characteristics change› Identifies price-determining characteristics and

uses hedonic regression analysis to attach a value to these

› Parameter estimates are then used to adjust new price

› To be applied to: Motor vehicles Cell phone instruments Certain high-tech items (computers, DVD

players etc)

• Will also introduce quantity adjustments

Methodological improvements

• Seasonal fruit› Currently exclude strong seasonal fruit› Will switch to the ‘seasonal basket’ method. One

weight for all seasonal fruit. Predetermined month seasonal baskets based on sales data.

Methodological improvements

• Used vehicles› Current method:

weight = sales; annual sample refresh, no linking

› Weights to follow national accounts method

› Used vehicle sales typically between households

› Weight = Value of sales x dealer margin

› Sample still to be refreshed annually

› Link substitute models with quality adjustment

Key timelines

• November 2012

– Publish final basket and weights CPI and PPI

• February 2013

– Publish reweighted, rebased CPI

-- Publish new PPI and UVIs

Thank you