Project Update Producer Price Index (PPI) Wholesale Price Index (WPI) External Technical Commitee Santiago, June 16th of 2009

TABLE OF CONTENTS I.BACKGROUND. II.PRODUCER PRICE INDEX PPI III.PROBLEMATIC ABOUT THE WHOLESALE PRICE INDEX WPI IV.DISPLAY OF INDICATORS

I. BACKGROUND STATISTICAL SYSTEM PRICE Consumer Price Index CPI Producer Price Index PPI Export Price Index Import Price Index Consistency with the System of National Accounts (SNA 1993) International Manuals OECD – IMF – EUROSTAT - UN International comparability Direct indicators of purchasing power of money in several transactions types and other flows that involve goods and services Design and implementation of economic policies Deflators to generate rapid measurements of the volume of goods and services produced and consumed

Achieve analytical integration of the economic statistical systems, consolidating the National Statistical System. Close the gaps in relation to the better practices OECD about quality and comparability. INE, Improvement strategy The last updating of these indicators was in the Currently doesnt exist the consistency with the National Accounts. Longevity in its base and therefore an obsolescence of the original basket The indicators today dont accurately show the reality of the economy. Methodological and conceptual recomendations about the measurement of the producer and wholesale prices: The IMF Fiscal transparency ROSC. Diagnostic I. BACKGROUND

Project Goal The main goal of the project is to have the updated information about the Producer Price Index (PPI) and the Wholesale Price Index (WPI), acording to the recomendations and standars of the OECD, to get consistency with the SNA.

Study of Manuals and Internationa l Methodologi es Building frameworks and the Pre- Basket Information gathering monthly Publication of new indicators -International Manuals of Producer Price Indices FMI. -International Methodologies Countries with high standars of statisticals. -Building frameworks organized by destiny and economical activities. -Determining of pre-basket -Implement the survey of register. -Definition of the basket -Design of samples for the monthly implement -Design of forms and instructive. -Gathering monthly. -Stablish tje base year, Study of results and -Publication of the indicators Schedule of Activities

DEFINITIONS The PPI is an indicator that measure the average price change in a basket of goods and services, offered by producers for the national comsumption and/or exports. The price considered is the basic price (first stage of its transaction) It use the output approach The PPI is used to deflact nominal series (SNA), analitical uses. II. PRODUCER PRICE INDEX

Basic Price Raw materials and production inputs Fuel Basic expenditures of production Wages, etc The basic price is the producer price less taxes. i.g Agriculture (farm price), Fishing (beach price) in general the price in the producer Costs of production Producer profit + Subsidies to the production+ Indirect taxes- BASIC PRICE Alcoholic and non alcoholic drinks Tobaco Fuels Luxury goods VAT

-- National accounts deflator Values at current prices in constant prices. -- Short term inflation indicator Used by diferent agencies to make economic policy. -- Long term indexer contracts Adjust the contract value over the time PPI Uses (Producer Price Index Manual)

Building a PPI

II. PRODUCER PRICE INDEX PRODUCER Costs of production + Producer Profits + Subsidies – Taxes Intermediate Goods Capital Goods Finals Goods EXPORTS Basic Price PPI DOMESTIC MARKET Intermediaries Final Consumer Basic Price FOB

Like others índices, the PPI will be computed from a basket that will have a tree structure. VBP (SCN) CIIU.CL 4 Díg. CCP.CL 7 Díg Σ p * q Basket Category Division Group Class Subclass Product 1Product 2 Variety 1 Subvariety Stablishment 2 Subvariety Stablishment 1 Variety 2 Weights Classifiers Example Agriculture, breeding, hunting and silviculture Agriculture, breeding, hunting and activities of linked services Crops in general, cultivation of market products horticulture Cultivation of fruits, nuts, plants whose leaves are used for beverages and spices Other fresh fruits n.p.c (exclude fruits of vegetables) Apples Red Apples

THE PPI INVOLVES THE FOLLOWINGS SECTORS OF THE NATIONAL ECONOMY: 1.Agriculture 2.Fishing (*) 3.Mining (*) 4.Industry 5.EGA 6.Construction Domestic MarketExports Economic Sectors (*) Include industrials sectors

Each sector will have their representative basket and will be added to the final construction of the respective index (domestic market or exports) Category Division Group Class Sub-Class Product Variety Price Index Domestic Market Sector A Índice de Precios Exportación Sector A Category Division Group Class Sub-Class Product Variety Publication

New Indicator PPI Without copper PPI Domestic Market PPI Exports Weights Consistents in aggregates levels with National Accounts VBP Sales (p*q) structural Classifiers Branches of Activities CIIU.cl Products CPC.cl Branches of activities CIIU.3 Products CPC.1 and own PriceBasic price Basic price and in some cases producer price. PPI Sumary Basket Formation Two Índices per destiny: Domestic Market - Exports Unique Basket to domestic market and exports Base PeriodYear 2009 = 100April 2003 = 100 ScopeUpdated PPICurrent PPI

Topics to be discussed at the next Technical Comitee a)Aggregation model b)Selection criteria for basket c)Imputation model d)Treatment of seasonality e)Basis Temporality f)Quality Adjusts g)Splice

Problematic on WPI

Chilean case The WPI is an monthly indicator that measure the average price changes of a basket of goods and services, offered by wholesalers for the national comsumption. The price considered must be the wolesale price (without VAT) Must to use the output approach The WPI is used as a deflator (ICMO), El IPM se utiliza como deflactor (ICMO), adjustment of tariff orders III. WHOLESALE PRICE INDEX

Wholesale Price Index WPI The WPI is a monthly indicator that measure the average changes in the paid prices in the diferent stages in the distribution chain up the retail point. PRODUCER Intermediates Goods Capital Goods Finals Goods Basic Price PPI Intermediaries Final Consumer Situación actual DOMESTIC MARKET IMPORTS Price CIF Costs of production + Producer Profits + Subsidies - taxes

PRODUCERCONSUMER Margin Trading + Transport Margin + Net indirect taxes on products DISTRIBUTORS Basic Price PPI Consumer Price CPI Wholesale Price WPI Retail Margin + VAT Costs production + Producer Profit. Exclude indirect taxes Proposed Situation

New Indicator WPI, national products WPI, Imports WeightsSales (p*q) structural ClassifiersProducts CPC.cl Branches of Activities CIIU.3 Products CPC.1 and own PriceWholesale price Domestic market Basic price Imports CIF price Basket Formation Separate baskets representative by origin: Nationals - Imports Separate baskets – Domestic market from PPI and Imports Base periodYear 2009 = 100 Domestic Market April 2003 = 100 Imports Nov 2007 =100 ScopeUpdated WPICurrent WPI WPI Sumary

Tariff Orders Sumary 1.Telcos (Law MTT 1982) USES: WPI, WPI imported goods and WPI national goods. 2.Sanitary Firms (DFL 70 MOP 1980 – DS 453 ME 1990) USES: WPI imported goods and WPI national products. 3.Electricity Generating Companies (DFL 4/20018 M. Minería 2006 – D 320/340) USES: WPI, WPI imported products from the manufacturing sector and WPI national products from the manufacturing sector, WPI imported goods. 4.Public Transport (Decree 212 MTT 1992) USES: Price of diesel oil. Price of natural gas. Lubricants, WPI imported products

Publication new baskets PPI - WPI Oct - Dic st Publication New PPI – WPI Annual Basis 2009 February 2010 IV. DISPLAY OF THE INDICATORS

Project Update Producer Price Index (PPI) Wholesale Price Index (WPI) External Technical Commitee Santiago, June 16th of 2009