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Producers Price Index: December 2011 quarter
Embargoed until 10:45am  –  20 February 2012
Data quality

Period-specific information

 This section contains information about data that has changed since the last release.

General information

This section contains information about data that does not change between releases.

Period-specific information

Response rates

Key firms

Achieved: 99.8 percent
Target: 100 percent

Non-key firms

Achieved: 97.3 percent
Target: 96 percent

Revision to financial services

Please see the Revisions section for a note on a revision to the June and September 2011 quarter data for financial services.

General information

Price collection

Most prices used to calculate the producer price index (PPI) are obtained by a quarterly postal survey called the Commodity Price Survey (CPS). In general, prices collected by the CPS are reported at the 15th of the middle month for the quarter. For the majority of commodities mid-quarter prices are used to represent price change for the whole quarter.

For those commodities with particularly volatile prices and/or high weights, Statistics NZ endeavours to collect or calculate average prices over the whole quarter. Examples include commodities sold at auction, such as fresh fruit and vegetables, livestock, wool, and dairy products.

Prices collected by the CPS are not only used in the PPI. Many prices are collected for use in other business price indexes, such as the capital goods price index (CGPI) and the farm expenses price index (FEPI). Some prices that are principally collected for other indexes, such as the consumers price index (CPI), are also used in the PPI. A number of prices used are collected from administrative sources to calculate the PPI.

Sample size

About 10,000 individual items are priced from a survey of approximately 2,200 respondents.

Data quality

Statistics NZ adopts procedures to detect and minimise avoidable variation and eliminate errors, but they may still occur and they are not quantifiable. At higher levels of aggregation, much of the individual variability often cancels out. The PPI data in the published and underlying indexes have been checked to identify any remaining uncertainty and detectable errors. These are corrected or re-estimated, where possible.

Ongoing work to redevelop, reweight, and enhance price indexes has the potential to change the underlying indexes. Accordingly, these data may be subject to revisions in the future.

Imputation

Some prices are not available at the time of price collection so a small number of prices are imputed each quarter. This is often done by carrying forward the previous quarter’s price. Other imputation is done by applying the price movements of similar categories of items.

Scope and coverage

Producer inputs price indexes (prices paid by producers)

Producer inputs price indexes (PIPI) relate to prices paid for goods and services. PIPI measure changes in the prices of goods and services used by producers resident in New Zealand. PIPI therefore exclude labour, finance, and depreciation costs.

PIPI cover the prices of:

  • materials
  • fuels and electricity
  • transport and communication
  • commission and contract services
  • rent and lease of land, buildings, vehicles, and plant
  • business services
  • insurance premiums less claims.

PIPI exclude:

  • wages and salaries (measured in the labour cost index)
  • capital expenditure/depreciation (measured in the capital goods price index)
  • ACC levies, land tax, government licence fees, road user charges
  • rates
  • royalties, patent fees
  • bad debts and donations.
Producer outputs price indexes (prices received by producers)

Producer outputs price indexes (POPI) are associated with prices charged for the supply of goods and services. POPI measure changes in the prices of goods and services sold by producers resident in New Zealand.

POPI cover the prices of:

  • goods and/or services legally sold at market prices
  • goods and/or services produced for own use by the productive sector.

POPI exclude:

  • interest income and dividends
  • royalties and patent fees
  • receipts from insurance claims
  • government cash grants and subsidies
  • goods and services tax (GST) and other indirect taxes.

These indexes are designed to measure price changes before the addition of commodity taxes or deduction of subsidies.

PIPI are available for all industries while POPI are not available for the public administration and safety, education and training, and health industries. Most of the outputs of these industries are non-market activities where the prices set, if any, are not directly measurable.

GST is generally excluded from the PPI.

New industry classification

Every New Zealand business on the Statistics NZ Business Frame is assigned an industry classification. The classification used is the Australian and New Zealand Standard Industrial Classification (ANZSIC). ANZSIC was developed by Statistics NZ and the Australian Bureau of Statistics (ABS) in the 1990s. It aimed to reflect the structure of the Australian and New Zealand economies in terms of economic activity and to improve comparability with international statistics.

In February 2006, ANZSIC was updated, completing a five-year joint Statistics NZ/ABS development project to update the standard industry classification. This version is called ANZSIC 2006 or ANZSIC06.

From the March 2011 quarter onwards, the PPI is constructed using ANZSIC06 as the basis for industry definition and published using New Zealand Standard Industrial Output Classification (see 'Industry publication level' below).

Previously, the PPI was constructed using the earlier version of ANZSIC (ANZSIC96). The ANZSIC96-based PPI will continue to be available from Infoshare until the March 2012 quarter.

For an explanation of the major differences between ANZSIC96 and ANZSIC06 and other useful information, please refer to table 1 of Implementing ANZSIC 2006 in national accounts and productivity statistics on the Statistics NZ website.

Industry publication level

The level of industry detail published under ANZSIC06 is standardised across Statistics NZ’s publications. This is to maintain consistency and to reflect the structure of the New Zealand economy. This standard industry level for publication purposes is called the New Zealand Standard Industrial Output Classification (NZSIOC).

The industry definitions used in the PPI are constructed using ANZSIC06 but published using NZSIOC. The most detailed PPI publication level is level 3 of the NZSIOC classification. The PPI is compiled using the most detailed level of the NZSIOC classification (level 4), which has 118 distinct industry groupings.

Weight reference period

As part of classifiying industries in the PPI using ANZSIC06, Statistics NZ has updated the industry weights and the commodity weights that underlie the industry indexes. Industry and commodity weights compiled using the national accounts supply and use estimates for the year to March 2008 have been used in this process.

Price reference period

The price reference period for the ANZSIC06-based PPI is the December 2010 quarter.

Index reference period

The index reference period for the ANZSIC06-based PPI is the December 2010 quarter, so all indexes equal 1000 for this period. The choice of an index reference period is arbitrary, the percentage movement in the indexes are unaffected by the choice of the index reference period.

Consistency with previous (ANZSIC96-based) PPI series

The previous ANZSIC96-based PPI series have been used to provide a ‘history’ for each series of the new ANZSIC06-based PPI series. The series that have been backcast include all the published industry indexes. This gives backcast series as far back as the ANZSIC96-based PPI series are available (generally to the June 1994 quarter). The backcast series have been linked to the directly calculated ANZSIC06 based series, at the December 2010 quarter.

Series references

The ANZSIC06-based PPI series have new series references, which have the following pattern:

  • PPI outputs (PPIQ.SQU*)
  • PPI inputs (PPIQ.SQN*)

The * comprises the NZSIOC industry codes. These codes are shown in the tables beside each industry. For example for horticulture and fruit growing, the NZSIOC code is AA11.

The series appearing in the 'selected commodities table' (table 7) have been reviewed. The updated selection has new series references with the pattern PPIQ.SQCnn. The 'nn' comprises sequential numbers starting with 01.

Statistics NZ’s Infoshare service, available on our website, makes the two ANZSIC families of PPIs (ANZSIC96 and ANZSIC06) clearly distinguishable by naming the former series ANZIND and the latter series NZSIOC. ANZIND was the published level of ANZSIC96 while NZSIOC is the published level for ANZSIC06.

Contract indexation

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses (also known as contract escalation clauses). An indexation clause provides both parties to a contract with an agreed procedure for adjusting an originally contracted price, to reflect changes in costs or prices during the life of the contract. Contract Indexation: A Guide for Businesses provides information on the price indexes produced by Statistics NZ and issues relating to their use in indexation clauses. The guide also outlines some points to consider when preparing an indexation clause, and includes an example of the mechanics of a simple indexation formula.

From the March 2011 quarter onwards, the ANZSIC06-based PPI is the official industry series produced by Statistics NZ. The existing ANZSIC96-based PPI will continue to be available from Infoshare until the March 2012 quarter. Information on the use of price indexes for contract indexation purposes and implications of the new official series becoming available can be found in Contract Indexation: A Guide for Businesses.  Parties to existing contracts have the option of moving from the ANZSIC96-based PPI to the ANZSIC06-based PPI immediately (by linking at the December 2010 quarter) or at any time during the following five quarters ending with the March 2012 quarter.

Foreign currency prices

The PPI Commodity Price Survey asks respondents to quote prices in New Zealand dollars. However, in some cases this causes difficulty for respondents. Prices collected for imported goods are often denominated in foreign currencies (eg USD).

When calculating the PPI, these currencies are converted to New Zealand dollars using the mid-quarter exchange rate for that currency, that is, divided by the bank selling rate as at the 15th of the middle month of the quarter.

Note about fuel in the PPI inputs indexes

Fuel is a component of all the input PPIs. For these indexes, there are variations in the types of fuel included, the source and frequency of price collection, and the timing of when price movements are shown.

Under ANZSIC96, the practice in a number of indexes (in place for more than a decade) has been to 'lag' by one quarter the movements for diesel and heavy fuel oil. For example, diesel and heavy fuel oil price movements that actually occurred in the September 2008 quarter were shown in the PPI road transport inputs index for the December 2008 quarter. On the other hand, petrol and light fuel oil price movements used in the PPI road transport inputs index are not lagged. Price movements for petrol and light fuel oil that occur in a particular quarter are shown in the PPI road transport inputs index for that quarter.

The affected indexes are listed below:

  • Mining – PPIQ.SNB
  • Manufacturing – PPIQ.SNC
  • Paper and paper product manufacturing – PPIQ.SNC08
  • Printing, publishing, and recorded media – PPIQ.SNC09
  • Non-metallic mineral product manufacturing – PPIQ.SNC12
  • Transport and storage – PPIQ.SNI
  • Road transport – PPIQ.SNI01
  • Water transport – PPIQ.SNI03
  • Air transport – PPIQ.SNI04
  • Rail, other transport and storage services – PPIQ.SNI09
  • Personal and other services – PPIQ.SNQ
  • Paper, printing, and publishing – PPIQ.SNX08.

The classification used in the PPI changed to ANZSIC06 in the March 2011 quarter. The PPI ANZSIC06-based industry inputs indexes no longer lag the movements for diesel and heavy fuel oil. The lag is included in the backcast ANZSIC06-based series up until the December 2010 quarter, inclusive. However, Statistics NZ will continue to lag these prices in the ANZSIC96 indexes until these series are discontinued in the March 2012 quarter.

Pricing financial services

The output of the banking sector can be broadly categorised in two ways. Firstly there are those explicit services provided by banks (and other financial intermediaries) that are explicitly charged for, such as bank account fees. Secondly, there is the general intermediation service provided by these businesses, which is not explicitly charged for, but which is implicitly charged for through financial institutions lending money out at higher interest rates than they pay to depositors (or organisations from whom they borrow the funds).

Pricing the explicit services provided by financial intermediaries is relatively straightforward, and the PPI outputs index for the finance industry contains prices to represent this component of their output.

Pricing the intermediation services provided by financial institutions that are not explicitly charged for is more problematic. Within the PPI outputs index, the approach that is adopted is to determine the differential interest rate (referred to as a 'spread') between banks' lending activities (referred to as 'claims') compared with their borrowing activities (referred to as 'funding'), and apply this spread to an inflation-adjusted base period value of financial intermediation.

The 'price' that is then derived can be thought of as the charge the banks implicitly make to intermediate sufficient funds needed to purchase a base period volume of goods/services. The claims and funding rates used in this calculation are sourced from the Reserve Bank of New Zealand (C10 Interest rates of New Zealand dollar funding and claims: Registered banks), while the inflation adjustment is carried out using the all groups consumers price index.

The Reserve Bank figures are subject to revision at times, if more complete information becomes available. Statistics NZ uses the latest available Reserve Bank figures at the time the PPI is compiled (one month after the reference quarter) and does not update the PPI if the Reserve Bank figures are subsequently revised. These revisions tend to be small.

One limitation of the above approach is that the weighted average interest rates on funding, sourced from the published information available from the Reserve Bank, exclude foreign currency funding, which accounted for approximately 30 percent of total registered bank funding at December 2008. The Reserve Bank has reported that it is working with registered banks to collect this information. Statistics NZ will incorporate this additional information to increase the coverage of bank funding interest rates in the PPI when it becomes available.

If the levels of the foreign currency funding interest rates are higher than the New Zealand dollar currency funding rates, then the existing calculated spread would be too high. While this would influence the level of the calculated 'price' of the implicit intermediation service, it is important to note that the PPI measures price movements rather than price levels.

Thus, the lack of coverage of foreign currency funding rates in calculating the spread would only manifest itself in the PPI if the relative movements of the foreign currency funding rates were significantly different from the relative movements of the New Zealand dollar funding rates.

Statistics NZ has looked at indicative alternative sources of foreign currency funding rates, and decided to continue to publish the existing index (which does not include foreign currency funding rates) until reliable information on foreign currency funding rates becomes available.

It should also be noted that the New Zealand dollar funding costs exclude the impact of hedging, for example interest rate-swap costs incurred against fixed-rate claims. This is because the PPI is interested in the rates that were contracted to by the parties to financial intermediation transactions. The hedging arrangements, while they will impact on the bottom-line profit of the banks, are considered to be separate transactions.

More information

Customised price indexes

Statistics NZ has a large number of unpublished sub-industry and representative commodity price indexes. Many of these are used within Statistics NZ for purposes such as deflation of current-price estimates in areas such as national accounts and tourism statistics.

These indexes are available at a small charge to cover dissemination costs. More customised data is also available to cover specific needs but these cost more to develop.

More information about the Producers Price Index is available on our website.

Liability

While all care and diligence has been used in processing, analysing, and extracting data and information in this publication, Statistics NZ gives no warranty it is error-free and will not be liable for any loss or damage suffered by the use directly, or indirectly, of the information in this publication.

Timing

Timed statistical releases are delivered using postal and electronic services provided by third parties. Delivery of these releases may be delayed by circumstances outside the control of Statistics NZ. Statistics NZ accepts no responsibility for any such delays.

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