Assessing the Quality of SPPIs M G Šova, J Wood & I Richardson Office for National Statistics, UK

Overview What are SPPIs? Quality Assessment of ONS SPPIs –Products –Business versus retail –Sampling –Weighting Non-standard estimation methods Other aspects Plans to improve and monitor quality

What are Services Producer Price Indices? Price movements in business-to-business services In UK: –Quarterly Laspeyres price index –Rebased every 5 years –Uses: Estimating corporate services inflation Deflators for Index of Services –Users: National Accounts Bank of England Eurostat

Quality Assessment of ONS SPPIs In 2006 by Dr Markus Šova –Replaced planned three-year programme 29 Product Classes –198 Product Categories 134 recommendations

Quality Assessment of ONS SPPIs Product descriptions often vague Dubious sample allocations between categories Weights –Some excessively large (potentially disclosive) –Some excessively small –Derivation and rationale not always clear –Weighting for purposively selected respondents problematic Coverage incomplete Definition of Europe ill-defined Some uses of external indices problematic Processing risks (manual transcription, spreadsheets)

Products - Classification CPA 2008 :124 pages –Agriculture & construction: 12 pages –Production: 72 pages –Wholesale & retail: 9 pages –Other services: 31 pages In-house service product classification

Product Definitions Need consistent product definitions over time Not always possible (e.g. Market Research) Not always possible to define the product (e.g. canteen services) Possible Solutions: –standard services –quality adjustment –hedonic modelling –model contracts –hourly rates –unit value prices

Business versus Retail Intermediate consumption v. final consumption (Supply-Use Tables) Differentiation not always possible (e.g. rail fares) Possible solution: –Product differentiation and differential weighting (e.g. by destination, travel time, ticket class) –Data not always available

Sampling ProdCom (sample size: 22,000) Ad hoc SPPI turnover surveys in 2000 and 2005 –Sample size: 5,000(SPPI sample size: 4,500) –Limited scope and coverage Purposive selection of respondents –Amended method for estimating unit weights Sample (mis)allocation

Weighting Large, small weights Product class weights –Category definitions –Uncertain and dubious derivation –Limited coverage –Supply-Use Tables (2005 rebasing) Unit weights –Purposive selection of respondents and products –Probability proportional to size sampling? –Consistency versus unbiasedness?

Non-Standard Estimation Methods Model contracts (e.g. computer programming) Hourly rates (e.g. legal services) Unit values (e.g. telecommunications) –cheap and easy –potential bias (but no variance) –quality adjustment

Other Aspects Percentage fees (e.g. employment agencies) –Dependence on related index Use of external indices –Quality assurance Annual chain-linking Scope and coverage –ProdCom for services? All products? Cost Timeliness

Plans to Improve and Monitor Quality Implement QA review recommendations –Re-specify vague item descriptions –Reduce processing risks Re-allocate sample –Standard errors –Re-categorisation –2000 weights versus 2005 weights Monitor unit value indices Periodically repeat quality assessment Resource constraints