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Producers Price Index: June 2013 quarter
Embargoed until 10:45am  –  19 August 2013
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: 100 percent
Target: 100 percent

Non-key firms
Achieved: 97 percent
Target: 96 percent

General information

Annual update of weights

After implementing the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06) in the March 2011 quarter, the producers price index (PPI) has its industry and commodity weights updated annually. The weights are sourced from the supply and use tables (SUT) produced annually as part of the New Zealand System of National Accounts. The weights associated with the commodities, and the weights attached to each industry, are therefore annually chain-linked. This reflects changes in economy-wide income and expenditure in the mix of products and the mix of industries.

The new weights introduced in the March 2013 quarter are generally sourced from the 2009/10 SUT. These weights are applied to a new price reference period of the December 2012 quarter and are being used to weight price movements from the December 2012 quarter to the March, June, September, and December 2013 quarters.

Industry reviews

In addition to the annual reweight, work is currently being done to review the producers price indexes. This work produces an up-to-date set of commodity proportions for use in each NZSIOC level 4 index. These updated proportions are then used by National Accounts to update the SUT, which in turn are used in the annual reweight. For more detailed information, please see the April 2013 Price Index News.

Commodity reviews implemented

Statistics NZ began work in 2011 to review the commodities used within the PPIs. This work re-evaluates the sample of products that are priced and the weights that are applied to them within each commodity, to ensure that they are relevant and fit for purpose. Each commodity contributes to each industry index with a different weight, which is updated annually based on the SUT, as discussed above.

In the June 2013 quarter, updated commodity indexes were implemented for the following commodities.

Metal products

  • basic iron and steel
  • products of steel
  • copper, nickel, aluminium, alumina, lead, zinc, and tin, unwrought
  • semi-finished products of copper, nickel, aluminium, lead, zinc, and tin, or their alloys
  • structural metal products and their parts
  • prefabricated buildings (of metal)
  • metal containers and steam generators and their parts
  • other fabricated metal products
  • fabricated metal product, machinery, and equipment manufacturing services
  • other manufacturing services.

In the output indexes, the weights of these commodities are high for primary metal and metal product manufacturing, and fabricated metal product manufacturing, which sell a lot of these products and services, and low or zero for other industries.

In the input indexes, these commodities are used by some industries. For example, companies in the fabricated metal product manufacturing industry purchase semi-finished products of aluminium to make the products they sell.

Electricity, gas, and water

  • electrical energy
  • electricity distribution services
  • gas supply
  • gas distribution services
  • water, including natural water, ice, and steam
  • water distribution services.  

In the output indexes, the weights of these commodities are high for the electricity, gas, and water industries, which sell a lot of these products and services, and low or zero for other industries.

In the input indexes, these commodities are used by most industries. Due to the nature of the electricity industry in New Zealand these commodities have high weights within the electricity, gas, and water industry (eg electricity retailers purchasing electricity from electricity generators).

These commodity indexes are not published.

Price collection

Most prices used to calculate the PPI are obtained by the Commodity Price Survey (CPS), a quarterly postal survey. 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 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 used 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. Administrative sources also supply prices for calculating the PPI.

Farm expenses price index

FEPI measures price changes of fixed inputs of goods and services to the farming industry. It does not fully measure changes in the production costs of farming. This is because production costs are not solely dependent on price movements, but also depend on factors that affect productivity, such as technological advances, management efficiency, and climate fluctuations.

Capital expenditure and depreciation are not covered. (For price indexes of capital expenditure, refer to the CGPI.)

FEPI is now produced for the March quarter of each year only, and is released with that quarter's PPI as supplementary tables.

Sample size

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

Data accuracy

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 are 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 revision 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

Producers price indexes of inputs (ie prices paid by producers)

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

PPI-inputs 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.

PPI-inputs exclude:

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

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

PPI-outputs 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.

PPI-outputs 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.

PPI-inputs are available for all industries while PPI-outputs are not available for the public administration and safety, education and training, and health industries. Most 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.

Current 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 the New Zealand Standard Industrial Output Classification (see 'Industry publication level' below).

Previously, the PPI was constructed using the earlier version of ANZSIC (ANZSIC96).

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.

From the March 2011 quarter onwards, the ANZSIC06-based PPI is the official industry series produced by Statistics NZ. The existing ANZSIC96-based PPI has been discontinued on Infoshare, from the March 2012 quarter onwards.

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 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 classifying industries in the PPI using ANZSIC06, Statistics NZ updated the industry weights and the commodity weights that underlie the industry indexes. Also, in conjunction with the industry classification, a system of annual updating of weights has been introduced using the supply and use tables produced as a part of annual national accounts. Updated PPI weights are now introduced each March quarter. Therefore the March 2013 quarter introduced an updated weight reference period for the year to March 2010.

Price reference period

The price reference period is the quarter that the latest quarter's prices are compared with in order to calculate indexes. As a part of the updating of the weight reference period (see above), the price reference period for the latest quarter is the December 2012 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 and the percentage movement in the indexes are unaffected by the choice of the index reference period.

Consistency with previous PPI series

The previous ANZSIC96-based PPI series were used to provide a ‘history’ for each series of the new ANZSIC06-based PPI series. The backcast series 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 are 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 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 has information on the price indexes produced by Statistics NZ and issues relating to their use in indexation clauses. The guide also outlines 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 has been discontinued on Infoshare, from the March 2012 quarter onwards.

Contract Indexation: A Guide for Businesses has information on the use of price indexes for contract indexation purposes and implications of the new official series becoming available. 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 CPS 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.

Pricing financial services

The output of the banking sector can be broadly categorised in two ways. Firstly there are 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 which 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 CPI.

The Reserve Bank figures are subject to revision 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 appear in the PPI if the relative movements of the foreign-currency funding rates were significantly different from those 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 these 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 affect 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 deflating 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.

See more information about the Producers Price Index

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

Our information releases are delivered electronically by third parties. Delivery may be delayed by circumstances outside our control. Statistics NZ does not accept responsibility for any such delays.

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