Project Update

Producer Price Index (PPI)

Wholesale Price Index (WPI)

External Technical CommiteeSantiago, June 16th of 2009

TABLE OF CONTENTS

I. BACKGROUND.

II. PRODUCER PRICE INDEX PPI

III. PROBLEMATIC ABOUT THE WHOLESALE PRICE

INDEX WPI

IV. DISPLAY OF INDICATORS

I. BACKGROUND

STATISTICAL SYSTEM PRICE

Consumer Price Index

CPI

Producer Price Index

PPI

Export Price Index

Import Price Index

Consistency with the System of National Accounts (SNA 1993)

International Manuals OECD – IMF – EUROSTAT - UN

International comparability

•Direct indicators of purchasing power of money in several transactions types and other flows that involve goods and services

•Design and implementation of economic policies

•Deflators to generate rapid measurements of the volume of goods and services produced and consumed

• Achieve analytical integration of the economic statistical systems, consolidating the National Statistical System.

• Close the gaps in relation to the better practices OECD about quality and comparability.

INE, Improvement strategy

• The last updating of these indicators was in the 2003.

• Currently doesn’t exist the consistency with the National Accounts.

• Longevity in its base and therefore an obsolescence of the original basket The indicators today don’t accurately show the reality of the economy.

• Methodological and conceptual recomendations about the measurement of the producer and wholesale prices: The IMF Fiscal transparency ROSC.

Diagnostic

I. BACKGROUND

Project Goal

The main goal of the project is to have the updated information about the Producer Price Index (PPI) and the Wholesale Price Index (WPI), acording to the recomendations and standars of the OECD, to get consistency with the SNA.

Study of Manuals and International

Methodologies

Building frameworks and the Pre-Basket

Information gathering monthly

Publication of new indicators

-International Manuals of Producer Price Indices FMI.-International MethodologiesCountries with high standars of statisticals.

-Building frameworks organized by destiny and economical activities.-Determining of pre-basket-Implement the survey of register.

-Definition of the basket-Design of samples for the monthly implement-Design of forms and instructive.-Gathering monthly.

-Stablish tje base year, 2009. -Study of results and -Publication of the indicators.

2008 - 2009 2009 2010

Schedule of Activities

DEFINITIONS

•The PPI is an indicator that measure the average price change in a basket of goods and services, offered by producers for the national comsumption and/or exports.

•The price considered is the basic price (first stage of its transaction)

•It use the output approach

•The PPI is used to deflact nominal series (SNA), analitical uses.

II. PRODUCER PRICE INDEX

Basic Price

Raw materials and production inputs

Fuel

Basic expenditures of production

Wages, etc

The basic price is the producer price less taxes. i.g Agriculture (farm price), Fishing (beach price) in general the price in the producer

+

+

+

+

Costs of production

Producer profit+

Subsidies to the production+

Indirect taxes-

BASIC PRICE

•Alcoholic and non

alcoholic drinks

•Tobaco

•Fuels

•Luxury goods

•VAT

-- National accounts deflator

− Values at current prices in constant prices.

-- Short term inflation indicator Used by diferent agencies to make economic

policy.

-- Long term indexer contracts

− Adjust the contract value over the time

PPI Uses(Producer Price Index Manual)

Building a PPI

II. PRODUCER PRICE INDEX

PRODUCER

Costs of production + Producer Profits + Subsidies

– Taxes

Intermediate Goods

Capital Goods

Finals Goods

EXPORTS

Basic Price PPI

DOMESTIC MARKET

Intermediaries

Final

Consumer

Basic Price FOB

Like others índices, the PPI will be computed from a basket that will have a tree structure.

VBP(SCN)

CIIU.CL4 Díg.

CCP.CL7 Díg

Σ p * q

Basket

Category

Division

Group Group

Class Class

Subclass Subclass

Product 1 Product 2

Variety 1

Subvariety

Stablishment 2

Subvariety

Stablishment 1

Variety 2

WeightsClassifiersExample

Agriculture, breeding, hunting and silviculture

Agriculture, breeding, hunting and activities of linked services

Crops in general, cultivation of market products horticulture

Cultivation of fruits, nuts, plants whose leaves are used for beverages and spices

Other fresh fruits n.p.c (exclude fruits of vegetables)

Apples

Red Apples

THE PPI INVOLVES THE FOLLOWINGS SECTORS OF THE NATIONAL ECONOMY:

1. Agriculture

2. Fishing (*)

3. Mining (*)

4. Industry

5. EGA

6. Construction

Domestic Market Exports

▲ ▲

▲ ▲

▲ ▲

▲ ▲

▲

▲

Economic Sectors

(*) Include industrials sectors

Each sector will have their representative basket and will be added to the final construction of the respective index

(domestic market or exports)

Category

Division

Group

Class

Sub-Class

Product

Variety

Price Index Domestic Market

Sector A

Índice de Precios Exportación

Sector A

Category

Division

Group

Class

Sub-Class

Product

Variety

Publication

New IndicatorPPI Without copper

PPI Domestic MarketPPI Exports

--------

WeightsConsistents in aggregates

levels with National Accounts VBP

Sales (p*q) structural

ClassifiersBranches of Activities CIIU.cl

Products CPC.clBranches of activities CIIU.3

Products CPC.1 and own

Price Basic priceBasic price and in some cases

producer price.

PPI Sumary

Basket FormationTwo Índices per destiny:

Domestic Market - ExportsUnique Basket to domestic

market and exports

Base Period Year 2009 = 100 April 2003 = 100

Scope Updated PPI Current PPI

Topics to be discussed at the next Technical Comitee

a)Aggregation model

b)Selection criteria for basket

c) Imputation model

d)Treatment of seasonality

e)Basis Temporality

f) Quality Adjusts

g)Splice

Problematic on WPI

Chilean case

•The WPI is an monthly indicator that measure the average price

changes of a basket of goods and services, offered by

wholesalers for the national comsumption.

•The price considered must be the wolesale price (without VAT)

•Must to use the output approach

•The WPI is used as a deflator (ICMO), El IPM se utiliza como

deflactor (ICMO), adjustment of tariff orders

III. WHOLESALE PRICE INDEX

III. WHOLESALE PRICE INDEXWholesale Price Index WPI

The WPI is a monthly indicator that measure the average changes in the paid prices in the diferent stages in the distribution chain up the retail point.

PRODUCERIntermediates Goods

Capital Goods

Finals Goods

Basic Price PPI

Intermediaries

Final

Consumer

Situación actual

DOMESTIC MARKET

IMPORTS

Price CIF

Costs of production + Producer Profits + Subsidies

- taxes

PRODUCER CONSUMER

Margin Trading + Transport Margin + Net indirect taxes on products

DISTRIBUTORS

Basic Price PPI

Consumer Price CPI

Wholesale Price

WPI

Retail Margin + VATCosts production + Producer Profit.

Exclude indirect taxes

Proposed Situation

New IndicatorWPI, national products

WPI, Imports--------

Weights Sales (p*q) structural Sales (p*q) structural

Classifiers Products CPC.clBranches of Activities CIIU.3

Products CPC.1 and own

Price Wholesale priceDomestic market Basic price

Imports CIF price

Basket FormationSeparate baskets

representative by origin:Nationals - Imports

Separate baskets – Domestic market from PPI and Imports

Base period Year 2009 = 100Domestic Market April 2003 = 100

Imports Nov 2007 =100

Scope Updated WPI Current WPI

WPI Sumary

Tariff Orders Sumary

1. Telcos (Law 18.168 MTT 1982)

USES: WPI, WPI imported goods and WPI national goods.

2. Sanitary Firms (DFL 70 MOP 1980 – DS 453 ME 1990)

USES: WPI imported goods and WPI national products.

3. Electricity Generating Companies (DFL 4/20018 M. Minería 2006 –

D 320/340)

USES: WPI, WPI imported products from the manufacturing sector

and WPI national products from the manufacturing sector, WPI

imported goods.

4. Public Transport (Decree 212 MTT 1992)

USES: Price of diesel oil. Price of natural gas. Lubricants, WPI

imported products

Publication new basketsPPI - WPI

Oct - Dic 2009

1st Publication New PPI – WPI Annual Basis 2009

February 2010

IV. DISPLAY OF THE INDICATORS

Project Update

Producer Price Index (PPI)

Wholesale Price Index (WPI)

External Technical Commitee

Santiago, June 16th of 2009