1 Use of aggregated SPPIs as a macro economic indicator of inflationary pressure: country views and possible future STESWP work Richard McKenzie & Seppo Varjonen OECD Statistics Directorate

2 Aggregation of Service Industry Producer Price Indexes (SPPI) Development of SPPIs are in general more advanced in non EU OECD countries –E.g. Australia, United States, Japan, Korea, New Zealand, Mexico all have extensive programs But Europe are catching up quickly …. Initial priority of SPPIs is for detailed (e.g. 4 digit level) indexes for use as deflators in national accounts –OECD / Eurostat Methodological Guide for Developing SPPI is directed at compilation of detailed indices with national accounts as main user

3 Aggregation of Service Industry Producer Price Indexes (SPPI) Also a s trong interest in many countries with well developed SPPIs is on use of aggregates for inflation monitoring by central banks etc. –Generally 1 digit ISIC or higher services aggregate Leads OECD to ponder: –Should aggregate SPPIs be more recognised as short- term macro economic indicators, are national users in all countries aware of their potential? –Is more international cooperation needed in this field?

4 European Union STS Regulation STS Regulation specifies delivery of 2 digit level SPPIs by March 2009 Currently many European Union countries produce / publish SPPIs at the 4 digit level only –May not be aggregating yet due to problems of coverage, although many countries now have good coverage in some sectors Not much discussion yet at European level on possible use of aggregate indexes

5 Country feedback on questions posed 1Has aggregation of SPPIs been considered and if so has this been discussed with users? –14 responses, 50% said No (all European countries except 1) citing lack of coverage at this stage so no real thought –Of those responding yes, 6 out of 7 had consulted users on the aggregates or possible aggregates (equal split EU / non EU) –Once potential users are consulted there seems to be strong interest and NSOs are actively pursuing this

6 Country feedback on questions posed 2If no to Q1, would you consider it? –Only 4 responses (all EU countries) all indicating that aggregation is a worthwhile aim and they would consult users

7 Country feedback on questions posed 3If no to Q1, what are the barriers to aggregating SPPIs? –9 responses all citing lack of coverage as the barrier to aggregation (1 also said resource issues) –Some issues raised over source of weights –One country said they would not aggregate until they have 80% coverage

8 Country feedback on questions posed 4Do aggregate SPPIs have value as a macro economic indicator of inflationary pressure? –14 responses, none doubting potential usefulness, but 1/3 citing ‘likely usefulness’ –2/3 responses citing definitive user interest, half of which cited very strong interest by users –Use to improve (aggregate) productivity measures in services cited by two countries (one user, one producer) –Some countries noted that use by national accounts was still key issue and other use only secondary

9 Country feedback on questions posed 5Support for OECD collection and aggregation to produce set of experimental aggregate indexes? –11 responses, 4 saying yes, 1 no –Majority of responses (6) cited that if OECD were to do this it would need close country involvement –Overall feeling of ‘concern’ if OECD were to rush into such a program

10 Country feedback on questions posed 6Support for OECD development of guidelines for aggregation with national experts, then perhaps collection and publication of aggregates? –16 responses of which 75% thought this was a good idea, some expressing desire to be involved –2 responses said OECD should not do anything before Eurostat –2 responses questioned the need, citing aggregation as being straight forward once coverage was acceptable Clear need for further clarification of what the aim of developing guidelines would be

11 Country feedback on questions posed 7Is STESWP the right group to lead development of guidelines for aggregating SPPI – in conjunction with Eurostat and Voorburg group? –13 responses of which 11 yes, but majority pointing out the importance of coordination with Eurostat and / or VG –2 questioned whether STESWP is the right group given the involvement already of other groups (one citing that membership would need to be altered)

12 Possible future STESWP work on this topic If guidelines were to be produced on aggregating SPPIs, they might cover the following issues: –Choice of weighting variable (e.g. turnover vs value added) –Aggregation formula –Coverage thresholds, % of weight vs % of coverage of (4 digit) industry components –Imputation for missing industry components (here sharing national experience on evolution of indices for different industry components could be important) –Relevance of aggregating across 1 digit level industries (what is the interpretation? How far can you go? Revisit weights?) –Type of analysis performed by users on the data, reflect this back to method and detail of aggregation

13 Issues for discussion Should STESWP pursue this topic –E.g. taking initiative in establishing a task-force to address issues in the previous slide How to best co-ordinate this with Eurostat and Voorburg group? –OECD is heavily involved with Voorburg Group –Eurostat will need to tackle similar issues to achieve STS-R OECD goal is the development of comparable service sector inflation measures –Eventual aim for collection of aggregates from countries