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Impact of Rebasing the Producer Price Index to 2010=100 This product is designated as National Statistics

Released: 12 November 2013 Download PDF

Abstract

This article describes the effect of rebasing the Producer Price Index (PPI) onto a 2010=100 base year and summarises the impact that rebasing has had on the headline (Net Sector) output and input series. Differences between the previous (2005) and new (2010) base year weighting patterns are illustrated in both the output and input series. Differences in index values and growth are also illustrated and discussed.

Introduction

The PPI has been rebased onto a 2010=100 basis and was published on 12 November 2013. Rebasing is the process of updating the reference period and the weighting patterns of indices within the index framework. Over time new products enter the market and the relative volumes of products bought and sold by UK manufacturers change. The PPI has updated weights to reflect changes in the patterns of industry and purchases between 2005 and 2010. Updating to a more recent weighting pattern ensures that the PPI is more reflective of the current structure of the economy and the relative size of industries within the manufacturing sector.

The index weights are calculated using sales data from a number of sources, including the annual PRODucts of the European COMmunity (ProdCom) survey, the Annual Business Survey (ABS), the Annual Minerals Raised Inquiry (AMRI), International Steel Statistics Bureau (ISSB), Balance of Payments & Financial Sectors (BoPFS) surveys, as well as data provided by the Department for Energy & Climate Change (DECC), the Department for Environment Food and Rural Affairs (Defra) and the Water Services Regulation Authority (Ofwat). The weights are calculated as the sales for each product group divided by the total sales for the category in which the product group belongs. The PPI only considers sales within the UK, referred to as “Home Sales”, when calculating these weights. Because of this, wherever a source of sales data includes export sales these are removed from the totals before the weights are calculated. 

Rebasing the PPI does not mean that the whole series has been reweighted using the 2010 weights. Doing so would have caused inappropriate weights being applied to earlier periods. To avoid this, a year between the old and new weighting patterns was selected. A period within the selected year was then chosen as the link period. In the case of 2010=100 rebasing the link period is December 2008. For the periods before the link period the indices were re-referenced to 2010=100. From the link period onwards the indices were aggregated using the new weighting pattern. This means that for periods up to the link period there is no change in growth rates, but growth rates after the link period could be revised due to the effect of rebasing.

There have been some changes to index structures. These result from changes to National Accounts Supply and Use tables which have been restructured into a Standard Industrial Classification (SIC) format rather than the Input/Output grouping format that was previously used in the PPI. A mapping of the Input/Output groups to Supply and Use SIC groups is summarised in Table A1 (Structure Mapping). These changes increase coherence between the PPI input structures and output structures. Overall there has been a reduction in the number of groupings in the table from 123 to 114. Greater concentration in the Service Sector in SIC 07 is met with a substantial reduction in the number of groupings in the Manufacturing Sector. The Supply and Use tables are part of the Input/Output framework of the European System of Accounts. More specifically, the Supply and Use framework is the part of the National Accounts system which focuses on the production economy and reflects industries' intermediate purchases and primary inputs.

Effect of rebasing on Net Sector Output (NSO)

The NSO measures changes in the prices of goods produced by UK manufacturers and sold in the home market. The weights used to calculate the index exclude transactions between companies classified to the same sector.

Updating the base year and sales used to calculate weights has led to changes in NSO weights, as shown in Table 1 and Figure 1.

Table 1: Comparison of NSO 2005=100 and 2010=100 weights

Description 2005 Index Weight (%) 2010 Index Weight (%) Difference
Alcoholic beverages, including duty  6.4 5.6 -0.8
Repair and installation services of machinery and equipment  2.8 1.1 -1.7
Other manufactured goods  3.7 3.9 0.2
Furniture  2.8 2.6 -0.2
Other transport equipment  1.8 3.3 1.5
Motor vehicles, trailers and semi-trailers  9.3 9.2 -0.1
Machinery and equipment nec  0.6 3.5 2.9
Electrical equipment  2.8 2.9 0.1
Computer, electronic and optical products  6.8 9.6 2.8
Fabricated metal products, except machinery and equipment  2.7 3.2 0.5
Basic metals  0.2 0.4 0.2
Other non-metallic mineral products  3.0 2.6 -0.4
Rubber and plastics products  2.9 2.5 -0.4
Basic pharmaceutical products and pharmaceutical preparations  2.8 3.3 0.5
Chemicals and chemical products  5.3 4.3 -1.0
Coke and refined petroleum products, including duty  9.2 8.2 -1.0
Printing and recording services  2.1 1.8 -0.3
Paper and paper products  1.9 2.1 0.2
Wood and products of wood and cork, except furniture; articles of straw and plaiting materials 1.2 0.9 -0.3
Leather and related products  1.8 1.6 -0.2
Wearing apparel  7.2 6.8 -0.4
Textiles  3.3 2.1 -1.2
Tobacco products, including duty  3.2 2.7 -0.5
Food products  14.9 14.8 -0.1
Soft drinks; mineral waters and other bottled waters  1.2 1.1 -0.1

Table source: Office for National Statistics

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Figure 1: Comparison of NSO 2005=100 and 2010=100 weights

Figure 1: Comparison of NSO 2005=100 and 2010=100 weights
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Increases in relative sales for Machinery & equipment nec and Computer, electronic & optical products within the manufacturing sector have led to large increases in their weights within the headline NSO index.

The impact of the weight changes on index values is illustrated in Figure 2. Index values for the 2005=100 and 2010=100 series are plotted from the link month (December 2008) onwards. To aid comparison the 2005=100 series has been rescaled so that index values average 100 across 2010.

 

Figure 2: Comparison of NSO 2005=100 and 2010=100 index values

Figure 2: Comparison of NSO 2005=100 and 2010=100 index values
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Figure 2 illustrates that the 2010=100 series follows a similar trend to the 2005=100 series, although growth in the 2010=100 series is at a slower rate. Between the base year (2010) and September 2013 NSO prices are now estimated to have grown by 8.8% instead of the 10.5% that was estimated using 2005 weights.

Figure 3 illustrates that month on month growth in the 2010=100 series is consistently lower than month on month growth in the 2005=100 series.

Figure 3: Comparison of NSO 2005=100 and 2010=100 month on month growth

Figure 3: Comparison of NSO 2005=100 and 2010=100 month on month growth
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Figure 4 compares index values of the 2010=100 NSO series against the 3 component indices with the largest upward weight movements.

Figure 4: Comparison of NSO 2010=100 index values against component industries with largest upward weight movements

Figure 4: Comparison of NSO 2010=100 index values against component industries with largest upward weight movements
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Each of the 3 components with the largest upward movements in weight exhibit slower growth than their parent index (the headline NSO). Computer, electronic and optical products has negative growth from December 2008 to September 2013. The effect of this is that these divisions have a larger influence on the 2010=100 NSO series than they did on the 2005=100 NSO series and they contribute to slower growth in the 2010=100 NSO series.

Figure 5 compares index values of the 2010=100 NSO series against the 3 component indices with the largest downward weight movements.

Figure 5: Comparison of NSO 2010=100 index values against component industries with largest downward weight movements

Figure 5: Comparison of NSO 2010=100 index values against component industries with largest downward weight movements
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Each of the 3 components with the largest downward movements in weight exhibit faster growth than their parent index (the headline NSO), though this is most pronounced for Coke and refined petroleum products, including duty, which experienced significant growth from December 2008 to September 2013. The effect of the weight reduction of these divisions is that they have less influence on the 2010=100 NSO series than they did on the 2005=100 NSO series and contribute to slower growth in the 2010=100 NSO series.

Effect of rebasing on Net Sector Input (NSI)

The NSI measures changes in the prices of materials and fuels bought by manufacturers for processing. This is not limited to those materials used in the final product, but also includes what is required by the company in its day to day running. The weights used to calculate the index exclude transactions between companies classified to the same sector.

Updating the base year and sales used to calculate weights has led to changes in NSI weights, as shown in Table 2 and Figure 6.

Table 2: Comparison of NSI 2005=100 and 2010=100 weights

Description 2005 Index Weight (%) 2010 Index Weight (%) Difference
Home Produced Food 10.7 12.6 1.9
Imported Chemicals 12.0 13.4 1.4
Imported Food  5.5 6.7 1.2
Imported Metals  7.0 8.0 1.0
Fuel (incl. Climate Change Levy)  9.2 10.0 0.8
Home Produced and Imported Crude Oil 19.4 20.0 0.6
Imported Parts and Equipment  19.7 18.2 -1.5
Other Home Produced Materials  4.9 2.8 -2.1
Other Imports  11.5 8.2 -3.3

Table source: Office for National Statistics

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Figure 6: Comparison of NSI 2005=100 and 2010=100 weights

Figure 6: Comparison of NSI 2005=100 and 2010=100 weights
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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The impact of these weight changes on index values is illustrated in Figure 7. Index values for the 2005=100 and 2010=100 series are plotted from the link month (December 2008) onwards. To aid comparison the 2005=100 series has been rescaled so that index values average 100 across 2010.

Figure 7: Comparison of NSI 2005=100 and 2010=100 index values

Figure 7: Comparison of NSI 2005=100 and 2010=100 index values
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Figure 7 illustrates that the 2010=100 NSI series follows a similar trend to the 2005=100 NSI series, although growth in the 2010=100 NSI series is at a slower rate. Between the base year (2010) and September 2013 NSI prices are now estimated to have grown by 16.2% instead of the 18.0% that was estimated using the 2005 weights. 

Figure 8 illustrates that month on month growth in the 2010=100 series is consistently lower than month on month growth in the 2005=100 series.

Figure 8: Comparison of NSI 2005=100 and 2010=100 month on month growth

Figure 8: Comparison of NSI 2005=100 and 2010=100 month on month growth
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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Figure 9 shows the effect of the Crude Oil index on the headline NSI index.

Figure 9: Comparison of Crude Oil and NSI (excluding Crude Oil) 2005=100 and 2010=100 index values

Figure 9: Comparison of Crude Oil and NSI (excluding Crude Oil) 2005=100 and 2010=100 index values
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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The Crude Oil index has become the largest component of the headline NSI index with a weight of 20% for 2010=100. It is also the most volatile series between December 2008 and September 2013, exhibiting by far the most growth over this period. As a result, growth in the Crude Oil index has the most significant impact on growth in the headline NSI index.

Figure 10 compares 2005=100 and 2010=100 year on year growth in the Crude Oil Index.

Figure 10: Comparison of Crude Oil 2005=100 and 2010=100 year on year growth

Figure 10: Comparison of Crude Oil 2005=100 and 2010=100 year on year growth
Source: Index Numbers of Producer Prices (PPI): Provision of Price Information - Office for National Statistics

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The period when Crude Oil had the largest impact on NSI growth occurred when Crude Oil growth was at its highest. This was between December 2008 and mid 2011 and coincided with the period when growth in Crude Oil prices was consistently lower on the 2010=100 series than on the 2005=100 series. This had the effect of contributing to slower growth in the headline 2010=100 NSI index. From mid 2011, although growth in the 2010=100 Crude Oil index was generally higher than on the 2005=100 index, there was significantly less growth in the Crude Oil index, therefore its impact was reduced.

Conclusions

  • The 2010=100 rebasing exercise has had a similar impact at the all-manufacturing level as that of the previous two rebasing exercises 2005=100 and 2000=100.

  • Differences between 2005=100 and 2010=100 index series are small at the all-manufacturing  level with larger differences occurring at the more detailed level.

  • Changes within NSO are mainly attributable to the Computer, electronic & optical products index. The combination of its increased weight and negative growth had the effect of causing the 2010=100 NSO index to grow more slowly than 2005=100 NSO index. In addition the Coke and refined petroleum products, including duty index exhibited significant growth between December 2008 and September 2013. As this index reduced in weight this also had the effect of causing the 2010=100 NSO index to grow more slowly than 2005=100 NSO index.

  • Changes within NSI are mainly attributable to the Crude Oil index. The period when Crude Oil had the largest impact on NSI growth occurred when Crude Oil growth was at its highest. This coincided with the period when growth in the Crude Oil index was consistently lower on the 2010=100 series than on the 2005=100 series. This had the effect of contributing to slower growth in the headline 2010=100 NSI index.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

PPI background

The PPI measures the change in prices of goods bought and sold by manufacturers. Overall, there are four types of PPI series produced:

  • Gross Sector Output (GSO).

  • Net Sector Output (NSO).

  • Gross Sector Input (GSI).

  • Net Sector Input (NSI).

The differences between output and input price series are:

  • Output price series – measure changes in the prices of goods produced by UK manufacturers and sold in the home market.

  • Input price series – measure changes in the prices of materials and fuels bought by manufacturers for processing. They are not limited to just those materials used in the final product, but also include what is required by the company in its day to day running.

The differences between net and gross sector are:

  • Net sector – the weights used to calculate these exclude transactions between companies classified to the same sector.

  • Gross sector – all transactions are included when deriving the weights, including sales within the same sector.

The same basic price information is used to feed into each of these four types of PPI series. The difference between each index type lies in the weights that are applied to combine the low-level series to form these high-level indices and which low-level series are combined to form the high-level indices. The headline series published in the PPI Statistical Bulletin are the NSO and NSI all-manufacturing series.

Around 6,750 price quotes are collected each month, together with some prices from administrative sources such as trade publications and other government departments. Output PPIs are calculated at a detailed product group (six-digit) level, with the products that fall into each PPI defined by the European Classification of Products by Activity (CPA), which in turn is based on the current 2007 Standard Industrial Classification (SIC). Indices produced for 1,552 detailed product groups are then grouped together using the aggregation structure of the CPA to produce 242 industry (four-digit) level series. The industry-level series are then grouped to give 33 division level (two-digit) indices, which in turn are grouped into the all-manufacturing index.

The PPI is a Laspeyres type index with fixed weights updated every five years. A Laspeyres price index calculates the change in value of a selection of n items assuming that the quantities of each item purchased are the same as they were in the based period.

This can be defined as:

where pti is the price of commodity i at time t, p0i is the price of commodity i in the base period 0 and q0i is the quantity of commodity i purchased in the base period 0.

Each all-manufacturing series is generally structured in the same way. It is easiest to explain the structure for the GSO excluding duty series. Initially, the prices supplied by each contributor are compared with the average price of the same item in the base period, to form a price relative. The price relatives are then weighted together with other products of a similar description to form the six-digit product index. The weights are derived based on the value of the ProdCom sales. The six-digit product groups are then grouped together with products of a similar nature to produce industry indices. In turn, these industries are weighted together to form their respective divisional indices. Finally, weighting together all the divisional series then produces the GSO all-manufacturing index.

Indices from product level to divisional level are produced on a gross sector basis. At the all-manufacturing level, output indices are produced on a gross and net sector basis. To calculate the NSO series, the same method is used to produce indices from the product level to generally divisional level as is used for the GSO series. To combine the division level indices to produce the all-manufacturing NSO series, Supply and Use data are used in place of ProdCom (and export) data to provide index weighting patterns. Unlike ProdCom data, which provide only a total product sales value, Supply and Use data allow a split in sales to be made within and outside the manufacturing sector, enabling sales to the manufacturing sector to be excluded from the NSO weights.

The NSI series is calculated from import and GSO indices which are calculated up to Supply and Use group level, which is based on the Standard Industrial Classification 2007 (SIC 07), using similar methods to those described above. These series are then weighted together using Supply and Use domestic and import data, removing sales and imports to the manufacturing sector, in the same way as for the NSO series.

For more detailed information on the construction of Producer Prices, please refer to the PPI manual. (1.01 Mb Pdf)

Structure mapping

Table A1: Mapping of Supply and Use (SU) SIC Groups to Input Output (I/O) Groups

SU PRODUCT I/O DESCRIPTION
01  Products of agriculture, hunting and related services           01 Products of agriculture, hunting and related services
02  Products of forestry, logging and related services           03 Products of forestry, logging and related services
03  Fish and other fishing products; aquaculture products; support services to fishing       04 Fish and other fishing products; aquaculture products; support services to fishing
05  Coal and lignite               05 Coal and lignite
06 & 07  Crude petroleum and natural gas   & metal ores          06 Crude petroleum and natural gas
08  Other mining and quarrying products             07 Metal ores and other non mining and quarrying products
09  Mining support services               08 Mining support services
10.1  Preserved meat and meat products             09 Preserved meat and meat products
10.2-3  Processed and preserved fish, crustaceans, molluscs, fruit and vegetables         10 Processed and preserved fish, crustaceans and molluscs
11 Processed and preserved fruit and vegetables
10.4  Vegetable and animal oils and fats            12 Vegetable and animal oils and fats
10.5  Dairy products                13 Dairy products
10.6  Grain mill products, starches and starch products           14 Grain mill products, starches and starch products
10.7  Bakery and farinaceous products              15 Bakery and farinaceous products
10.8  Other food products               16 Sugar; cocoa, chocolate and sugar confectionary
17 Processed tea and coffee; condiments and seasonings; prepared meals and dishes; homogenised food preparations and dietetic food; other
10.9  Prepared animal feeds               18 Prepared animal feeds
11.01-6  Alcoholic beverages                19 Distilled alcoholic beverages and malt
20 Wine from grape; cider and other fruit wines; other non-distilled fermented beverages; beer
11.07  Soft drinks                21 Soft drinks, mineral waters and other bottled waters
12  Tobacco products                22 Tobacco products
13  Textiles                 23 Textile yarn and thread, woven textiles, textile finishing services
24 Other textiles
14  Wearing apparel                25 Wearing apparel
15  Leather and related products              26 Leather and related products
16  Wood and of products of wood and cork, except furniture; articles of straw and plaiting materials  27 Wood and products of wood and cork, except furniture; articles of straw and plaiting materials
17  Paper and paper products              28 Pulp, paper and paperboard
29 Articles of paper and paperboard
18  Printing and recording services              30 Printing and recording services
19  Coke and refined petroleum products             31 Coke and refined petroleum products
20.3  Paints, varnishes and similar coatings, printing ink and mastics         35 Paints, varnishes and similar coatings, printing ink and mastics
20.4  Soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations       36 Soaps and detergents, cleaning and polishing preparations, perfumes and toilet preparations
20.5  Other chemical products               37 Other chemical products
20A  Industrial gases, inorganics and fertilisers (all inorganic chemicals) - 20.11/13/15        32 Industrial gases; other inorganic basic chemicals; fertilisers and nitrogen compounds,
20B  Petrochemicals - 20.14/16/17/60               34 Other organic based chemicals; plastics in primary forms; synthetic rubber in primary forms; man-made fibres
20C  Dyestuffs, agro-chemicals - 20.12/20              33 Dyes and pigments; pesticides and other agrochemical products
21  Basic pharmaceutical products and pharmaceutical preparations            38 Basic pharmaceutical products and pharmaceutical preparations
22  Rubber and plastic products              39 Rubber products
40 Plastic products
23.5-6  Manufacture of cement, lime, plaster and articles of concrete, cement and plaster   43 Cement, lime and plaster, articles of concrete, cement and plaster
23OTHER  Glass, refractory, clay, other porcelain and ceramic, stone and abrasive products - 23.1-4/7-9  41 Glass and glass products
42 Refractory products; clay building materials; other porcelain and ceramic products
44 Cut, shaped and finished stone, other non-metallic mineral products
24.1-3  Basic iron and steel              45 Basic iron and steel and ferro-alloys; tubes, pipes, hollow profiles and related fittings, of steel; cold rolled narrow strip
24.4-5  Other basic metals and casting             46 Cold formed or folded products; cold drawn wire; precious metals; aluminium; lead, zinc and tin; copper; other non-ferrous metals
47 Processed nuclear fuel
51 Forging, pressing, stamping and roll-forming services of metal; powder metallurgy; treatment and coating services of metal; machining
52 Cutlery, tools and general hardware
25.4  Weapons and ammunition               50 Weapons and ammunition
25OTHER  Fabricated metal products, excl. machinery and equipment and weapons & ammunition - 25.1-3/25.5-9     48 Structural metal products
49 Tanks, reservoirs and containers of metal; steam generators, except central heating hot water boilers
53 Other fabricated metal products
26  Computer, electronic and optical products             54 Electronic components and boards
55 Computers and peripheral equipment 
56 Communication equipment
57 Consumer electronics
58 Measuring, testing and navigating equipment; watches and clocks
59 Irridiation electromedical and electrotherapeutic equipment
60 Optical instruments and photographic equipment; magnetic and optical media
64 Domestic appliances
81 Medical and dental instuments and supplies
27  Electrical equipment                61 Electrical motors, generators, transformers and electricity distribution  and control apparatus; batteries and accumulators
62 Wiring and wiring devices
63 Electric lighting equipment; other electrical equipment
28  Machinery and equipment nec             65 General purpose machinery
66 Other general purpose machinery
67 Agricultural and forest machinery
68 Metal forming machinery and machine tools
69 Other special purpose machinery
29  Motor vehicles, trailers and semi-trailers             70 Motor vehicles
71 Bodies (coachwork) for motor vehicles; trailers and semi-trailers
72 Parts and accessories for motor vehicles
30.1  Ships and boats               73 Ships and boats
30.3  Air and spacecraft and related machinery            75 Air and spacecraft and related machinery
30OTHER  Other transport equipment - 30.2/4/9             74 Railway locomotives and rolling stock
76 Military fighting vehicles
77 Transport equipment nec
31  Furniture                 78 Furniture
32  Other manufactured goods               79 Jewellery, bijouterie and related articles; musical instruments
80 Sports goods; games and toys
82 Manufactured goods nec
33.15  Repair and maintenance of ships and boats           84 Repair and maintenance services of ships and boats
33.16  Repair and maintenance of aircraft and spacecraft           85 Repair and maintenance services of aircraft and spacecraft
33OTHER  Rest of repair; Installation - 33.11-14/17/19/20            83 Repair services of fabricated metal services; repair services of machinery; repair services of electronic and optical equipment
86 Repair and maintenance services of other transport equipment
87 Installation services of industrial machinery and equipment
35.1  Electricity, transmission and distribution  88 Electricity production & distribution
35.2-3  Gas; distribution of gaseous fuels through mains; steam and air conditioning supply      89 Gas distribution
36  Natural water; water treatment and supply services           90 Water supply

Table source: Office for National Statistics

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