Producer price index

0. Registration entry for subjects

0.1 Name

Producer price index

0.2 Subject area

Prices and Consumption

0.3 Responsible authority; office, division, person etc.

Statistics Iceland
Price statistics
Tel: +354 528-1200

0.4 Purpose and history

The producer price index measures changes in prices received by producers for their products. The purpose of the index is twofold. On one hand it is used as a sub-item of the GDP deflator, i.e. as a tool to distinguish between quantity and price variations in the GDP. On the other hand it serves as a short term indicator of inflationary trends within the domestic manufacturing sector. The PPI differs from the CPI, which focuses on the household consumption. Therefore the PPI is applicable as a measure of state, prospects and development of the economy from a different perspective.

The producer price index was initially compiled with the 4th quarter of 2003 as a reference period. The 4th quarter of 2005 was established as a reference point alongside an increase in the number of published PPI subindices in 2006. As of January 2007 the index is compiled as a monthly index with the 4th quarter of 2005 as a reference point. At the same time earlier price indices for marine products were integrated into the PPI. Since then they have been calculated as subindices of the PPI and are based on the same methodology.

0.5 Users and application

The producer price index is utilized by organizations within the public sector, including the Central Bank of Iceland and government ministries. The index is also used by various organizations, enterprises, banks and investors within the private sector. The PPI serves as a short term indicator of economic development.

0.6 Sources

Statistics Iceland collects data on prices and quantity sold from domestic manufacturers. Over 90,000 observations are transmitted electronically every month.

Aggregate indices are compiled using weights from the annual PRODCOM-survey that is carried out by Statistics Iceland, and submitted data on production quantities. Subindex weights for marine products are based on export statistics collected by Statistics Iceland's External trade department.

0.7 Legal basis for official statistics

Data collected by Statistics Iceland is governed by legislation on Statistics Iceland and official statistics, No. 163/2007.

0.8 Response burden

Price data is collected electronically on a monthly basis. By collecting data electronically the response burden is minimized.

0.9 EEA and EU obligations

Member states of the EEA are obligated to publish a monthly producer price index by EU regulation, No. 1165/98 on short term economic indicators, which is included in Annex XXI to the EEA Agreement.

1. Contents

1.1 Description of content

The producer price index is an output price index for domestic production and measures the price that a producer receives for sold production, the factory gate price. The purchaser is typically a wholesaler, retailer or a producer using the output as an input into its own production. The index does not cover services.

Until 2006 two subindices of the producer price index were compiled and published, one for marine products and the other for all other manufacturing products. As of the first quarter of 2006 subindices for products sold domestically, exported products and exported products excluding marine products were introduced. As of 2007 subindices for food production, power intensive industry products and finally exports excluding marine products and power intensive industry products are available, compiled back to the 4th quarter of 2005.

1.2 Statistical concepts

The index is compiled using superlative formulas at the elementary level as well as the aggregate level. Elementary weights are calculated from the values of sales reported by each respondent. Each elementary index is a maximum overlap month-to-month index, which means that all products sold both in the reference month and the previous month are used in the index.

2. Time

2.1 Reference periods

The producer price index is compiled monthly with reference to the previous month. The index in February, published at the end of March, compiles the price change between January and February.

2.2 Process time

Each month's index is compiled and published before the end of the following month.

2.3 Punctuality

The index is published at 9:00 a.m. on the scheduled date in accordance with the Advance Release Calendar. Each year's Advance Release Calendar is published in October, the previous year.

2.4 Frequency of releases

The producer price index is a monthly index.

3. Reliability and security

3.1 Accuracy and reliability

The producer price index is based on transaction data extracted directly from the respondents' business software. Over 90,000 distinct prices and quantities are collected electronically every month. Statistics Iceland prefers electronic data collection to traditional methods due to its high data accuracy and its ability to eliminate substitution bias. The index is constantly under revision and new producers are being introduced to the sample. Submitted data is checked for measurement errors and significant outliers are investigated further by contacting the respondent. Corrections are made if measurements are deemed false or misleading.

3.2 Sources of errors

· Sampling errors
Sources in the sample are not selected at random and data coverage differs significantly between industries. Furthermore, price changes reported by a respondent are not necessarily representative for the overall price development within its industry so the sample is continuously being revised and expanded.

· Quality change
Price changes due to changes in product quality should not affect a price index. When a product's price change is measured, quality must remain constant. Electronic data collection with data disaggregated to match producers' specific product codes is likely to minimize quality change biases.

· Measurement errors
Reuse of product codes for different products and a change in unit of quantity reported may cause errors, but those are not likely to go unnoticed.

3.3 Measures on confidence limits/accuracy

A sampling error or a confidence interval is not calculated as the price survey is based on a judgmental sample but not a random one.

4. Comparison

4.1 Comparison between periods

Comparability over time is good. Aggregate weights are revised monthly and the sample is continuously being expanded. The quarterly index from the 4th quarter of 2003 to 2005 is fully comparable with the current monthly index by chaining at the 4th quarter of 2005.
Price indices for marine products have been calculated since 1986. Following the methodological changes in the beginning of 2007, when they were integrated into the PPI, monthly figures were published with the new reference point for the preceding year. The price changes for 2006 are therefore the same for both the old and the new reference. The major methodological changes result in virtually two separate indices. This should always be taken into consideration when linking current data with older series.

4.2 Comparison with other statistics

The producer price index measures changes in the revenue received by domestic goods producers. It is therefore theoretically similar to the consumer price index for part of the production it covers is sold to consumers.

4.3 Coherence between preliminary and final statistics

Each publication of the index is final and is not revised.

5. Access to information

5.1 Forms of dissemination

· News, released on Statistics Iceland's website
· Statistics, categorized statistical web tables
· Statistical Series, Hagtíðindi
· Statistical Yearbook of Iceland, Landshagir
· Electronic subscription to news releases

5.2 Basic data; storage and usability

Source data is stored at Statistics Iceland and is not available to anyone not directly working on the producer price index within the division.

5.3 Reports

Changes and development of the index are reported alongside the publishing of new data.

5.4 Other information

For further information on the producer price index send an e-mail to or call Price statistics, tel. +354-528-1200.

© Hagstofa �slands, �ann 19-6-2008