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.
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.
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.
|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|
|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|
|Computer, electronic and optical products||6.8||9.6||2.8|
|Fabricated metal products, except machinery and equipment||2.7||3.2||0.5|
|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|
|Tobacco products, including duty||3.2||2.7||-0.5|
|Soft drinks; mineral waters and other bottled waters||1.2||1.1||-0.1|
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 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 4 compares index values of the 2010=100 NSO series against the 3 component indices with the largest upward weight movements.
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.
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.
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.
|Description||2005 Index Weight (%)||2010 Index Weight (%)||Difference|
|Home Produced Food||10.7||12.6||1.9|
|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|
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 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 9 shows the effect of the Crude Oil index on the headline NSI index.
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.
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.
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.
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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)
|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|
|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|
|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|
|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|
|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|
|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|