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S t a t i s t i c a l b o o k s

European Price StatisticsAn overview


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S t a t i s t i c a l b o o k s

European Price StatisticsAn overview


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Eurostat is the Statistical Oice o the European Communities. Its mission is to provide theEuropean Union with high-quality statistical inormation. For that purpose, it gathers andanalyses igures rom the national statistical oices across Europe and provides compara-ble and harmonised data or the European Union to use in the deinition, implementationand analysis o Community policies. Its statistical products and services are also o greatvalue to Europes business community, proessional organisations, academics, librarians,NGOs, the media and citizens.

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5European Price Statistics

Te publication explains the methodologies and use o European price indices and helps econo-mists and citizens alike to understand the main concepts o price statistics. Te book shows andillustrates the price indices that exist in the Eurostat data bases and explains their relevance, their

interrelationships and diferences. Although the publication is illustrated by graphs and tables withstatistical data, communicating the latest gures is not the primary objective.

Editor-in-chief:

Gunter Scher

Eurostat, Head o Unit B6 Dissemination

Editorial team:

Virginie Dohn, Eurostat, Unit B6 Dissemination

Iliyana Savova, Eurostat trainee, National Statistical Institute o Bulgaria

Ulrich Wieland, Eurostat, Unit B6 Dissemination

Contact details:

Eurostat,

Statistical Oce o the European Communities,

Btiment Joseph Bech,

5, Rue Alphonse Weicker

L-2721 Luxembourg

E-mail address: [email protected]

Credits:

It would not have been possible to produce this publication without the assistance and goodwillreceived rom the ollowing Eurostat units and authors:

Directorate C: National and European accounts

C0 National and European Accounts (Carsten Olsson)

C1 National accounts methodology and analysis (Paul Konijn, Sebastian Reinecke)


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6 European Price Statistics

Directorate D: Economic and regional statistics

D2 Regional indicators and geographical inormation (Baudouin Quennery)

D3 Short-term statistics (Brian Newson, Isabelle Rmond-iedrez)

D4 Price statistics (Keith Hayes, Alexandre Makaronidis, Silvia Santos)

Directorate E: Agriculture and environment statistics; Statistical cooperation

E2 Agriculture statistics (Iulia Paula Pop, Peter Szabo, Fausto Cardoso)

Directorate F: Social statistics and information society

F2 Labour market (Simone Casali, Hannah Kiiver)

Directorate G: Business statisticsG3 International trade statistics production (Karo Nuortila)

G4 Energy statistics (Johannes Grten)

Data extracted at the beginning o October 2007, except: Energy statistics, Agriculture and La-bour Market statistics 14 November 2007.


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Table o Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Basic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Consumer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Import and Export Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Purchasing Power Parities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

National Accounts Deators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Labour Cost Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Energy Price Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Agricultural Price Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Construction Cost Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Services Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Annex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Further inormation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114


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Introduction


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Tis publication aims to help non-specialists and the general public to understand the mainconcepts o price statistics, and to learn about indices and prices and their relationship to theeconomy and to daily lie. It seeks to provide an understanding o the need or diferent price

indices and explains how each price index is linked to economic phenomena and policies.

Te starting point or all statistics introduced in this publication are prices. A price is an amounto money paid by the buyer to the seller o a good or service or, in other words, a price is themoney value o a good or service as agreed upon in a transaction. Tese transactions can com-prise o any types o products, be they destined or consumers, producers or government. Teycan concern industrial goods, diferent kinds o services or agricultural products, as well as la-bour inputs or nancial assets.

Altogether, prices and their interrelationships make up the system o prices, which afect all

sections o society, and determine how resources are allocated. For example, to consumers thestructure o prices indicates the terms on which they can acquire the goods on which they spendtheir money; to producers prices indicate the terms on which they may dispose o their goodsand services or acquire the goods and services o others. Tus prices inuence both the quanti-ties o production and the patterns o consumption. However, prices o diferent commodities,and changes in prices, afect diferent parts o society diferently. Tereore, it becomes necessaryto compile diferent types o price statistics since each o them has their own importance andrelevance or the economy.

Furthermore, prices o diferent products and product groups are closely observed by politiciansand by the Central Banks in order to monitor the economy and to conduct monetary and eco-nomic policy, but also by industries and businesses to decide on investments, developments ormarket initiatives. Also the general public has a wide interest on price data. Consequently, pricestatistics have to satisy this variety o needs, rom general inormation about economic develop-ment to detailed inormation on specic market sectors.

Statistical oces have developed a range o price statistics to serve these user needs. Most o thecurrent statistics are indicators o price changes over time, i.e. temporal price indexes, but alsospatial price comparisons, either in absolute terms (average prices) or in relative terms (in par-ticular purchasing power parities) are made available. Te most important temporal price indicesin the system o economic statistics are consumer price indices (in the EU - Harmonised Indices

o Consumer Price Indices, HICPs), producer price indices, and export and import price indices.Complemented by indicators o labour costs and purchasing power parities (PPPs) these indicesorm the backbone o the system o price statistics in most countries. Tey provide an integratedand consistent view o price developments pertaining to production, consumption, and interna-tional transactions in goods and services.

Te rst chapter o this publication reviews some basic concepts concerning price statistics the diferent ormulae used in the calculation o indices, the meaning o the consumer basket,the diference between a price index and price change, etc. Further chapters guide the readerthrough the various price statistics and indices available on the Eurostat website, which are

the ollowing:


Introduction


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Consumer price indices (CPIs ), which are the best known price indices, measure changesin the prices o goods and services rom a consumers perspective. CPIs are based on theprices o the goods and services which households typically buy. In order to ensure consist-

ency o price indices at the European level, the Harmonised Index of Consumer Prices(HICP) was developed, which is a harmonised consumer price index or all EU countriesand the ocial measure o consumer price ination in the euro area.

Producer price indices (PPIs) measure developments in producers transaction prices, thegross monthly changes in the trading price o products and services on the domestic andthe non-domestic market.

Import and export price indices use data rom the establishments surveyed in order tomeasure price developments o representative exported and imported items.

Purchasing Power Parities (PPPs) compare price levels between countries or regions. Teyare used to convert prices expressed in national currencies into a kind o articial commoncurrency, in order to eliminate price level diferences between countries or regions, and tobe able to calculate the actual/real purchasing power o the resident population.

Labour cost indices (LCIs) show the total cost or employers o employing the labour orceon an hourly basis. Te LCIs measure the cost pressure arising rom the labour productionactor.

Price indices and price statistics have also been developed or major sectors o the economy andare presented in this publication. Tey include agricultural price statistics (APS),energy pricestatistics, construction costs indices (CCIs) and services producer price indices (SPPIs).


Introduction


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Basic Concepts


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Basic Concepts 1


Prices

Te price o a good or service is simply dened as the value o one unit o that good or service.

Prices are observable in transactions we all make every day. Price statistics may measure the levelo prices or changes in prices.

The price of a good or service depends not only on the inherent characteristics of the good or serv-

ice, but also where it is sold and in what condition. At a particular point of time prices of even identi-

cal products vary between shops. There are differences in quality. Moreover a good that emerges

from a factory progressively changes its price as it moves through the economic system - by the

addition of transport costs, trade margins and taxes (such as VAT) before it is finally bought by

consumers.

Prices are generally determined on a market, according to the laws of supply and demand. Pricestatistics try to follow the development of prices as they are actually paid or received, i.e. the price

paid by the customer (consumer price) or the price received by the producer of the good or service

(producer price). For example, the taxi fare paid by a passenger is one example of a good used in

calculating the consumer price index. The fare paid by the customer minus Value Added Tax (VAT)

is the producer price received by the taxi operator.

The price of each good or service is made up of several cost factors, such as wages, materials, rents,

depreciation, interest, energy and transportation. A cost index for taxi transportation would meas-

ure the price development of cost factors that the taxi entrepreneur has to pay in order to run his

business, i.e. the price development of wages, fuel, cars, servicing, etc.

Price indices

A price index compares the prices o a set o products at diferent points in time, or at diferentlocations. It thereore measures price changes or price diferentials rather than price levels.

A price index shows how much must be paid or a set o products at some point in time relativeto what would have been paid or the same set o products at another point in time, which latter istaken as the reerence o the comparison. Tis is done by setting the index value or the reerence

or base year to 100 so-called index points.

For example, an index value o 123.4 or the current month compared to base year 2000, whichhas been set to equal 100.0, means that on average the prices o the products in question haveincreased by 23.4% since 2000. Similarly, an index value o 90.0 signies a 10% decrease.

From a series o index numbers one can calculate the price change between any two periods. Teyear-on-year, or annual rate o ination, or instance, is the percentage change in the price indexor a given period compared to the index value recorded twelve months earlier. For example, oran index value o 183.1 or January 2004, and an index value o 178.4 recorded a year earlier in

January 2003, the annual rate o ination is:


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1 Basic Concepts

Annual rate o ination or January 2004 = 2.6%100*1178.4

183.1= .

Similarly, one can compile month-on-month or average annual rates o change.

The basket

A change in the expenditure needed or purchasing a set o goods or services, i.e. the sum omoney to be paid, can result rom changes in the prices, or changes in the quantities, qualities orkinds o the goods and services purchased.

Te aim o a price index is to measure the change in the expenditure or costs, across space ortime, which is due only to changes in prices. Te set o goods o services used to base the calcula-

tion o the price change is known as the basket o goods and service, or the consumer basketi the index is to measure the changes in consumer prices. Depending on the kind o the priceindex, the basket must be representative o the goods and services acquired or consumed.

It would be simplest i prices changes could be measured on the basis o one and the same bas-ket, i.e. a xed basket, or all places or at all points in time. However in a modern economy thiswould not be practical since technologies, production systems, outlets and markets all changeover time, products appear and disappear and purchasers preerences evolve. For instance thenew product called television rst entered consumer markets in the middle o the last century.It used cathode tube technology and showed black and white pictures. Many years later it was

superseded by colour V, which is now being replaced by plasma and LCD Vs. Tis shows thatbaskets cannot be xed over long periods o time, but need to be updated i price measurementis to remain relevant and accurate. Baskets need to be updated regularly, and are oen updatedon a yearly basis.

In order to aggregate, that is to add up the price change measured or each product in the basket,each price change must be given its relative importance o the products taking account o thetotal sum o money spent in the index base period. Price changes are weighted according to therelative expenditures on the products covered by the index.

In order to illustrate this by means o a very simple example where it is assumed that, betweenthe base year and the current period, the ollowing price changes have been observed or a basketcomprising three commodities - cofee, petrol and milk:

0.5 kilos o cofee at 4.00 per kilo, then at 6.86 98 litres o petrol at 1.02 per litre, then at 1.05 29 litres o milk at 1.38 , then at 1.40 .

In order to compile the price index or this basket, one needs to know the price index value andthe relative expenditure weight or each commodity.


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Basic Concepts 1


Te relative expenditure weights can be expressed by taking or each commodity the quantity con-sumed in the base period times its price, divided by the total expenditure over the same period.

0.014142.00

2.00 ==cofeew

As one can see, in this example, the weight or petrol is clearly higher than or the other com-modities. Tis means that changes in petrol prices will have a much bigger impact on the totalindex than those o cofee and milk.

Each item index is usually calculated as the relative price level o each commodity in period t ascompared to the base period, times 100. For instance the index or cofee is compiled as:

171.50100*4.006.86 ==cofeeI

Te price change is 71.50%100*14.00

6.86==cofeeI

Te table below lists the weights and indices or the three examples mentioned above:

Commodity Expenditure Weight Pricest0

Indext0

Pricest1

Change Indext1

Cofee 2.00 0.014 4.00 100 6.86 71.50% 171.50

Petrol 100.00 0.704 1.02 100 1.05 2.94% 102.94

Milk 40.00 0.282 1.38 100 1.40 1.45% 101.45

Totals 142.00 1.000 100 103.49

Item weights and indices can then be used to establish the total index I or these three com-modities. Tis all-items index is usually compiled by multiplying each item index by its relativeexpenditure weight:

103.490.282*101.450.704*102.940.014*171.50 =++=itemsallI

Te average price change measured on the basis this basket amounts to 103.49-100 = 3.49index points. Since the current period is compared directly to the base or reerence period, thisis equivalent to a 3.49% percent price increase.


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1 Basic Concepts

Calculating price indices

Te basic ideas o index calculation and the ormulae used are simple: we want to know how

much the total price o a basket o goods in a certain period difers rom the total price o thesame basket in another period, whether that is the previous month, the previous year or someother point in time.

Index ormula

Price indices can be calculated using various ormulae. Some o the most widely used are:

Laspeyres price index: this index measures the price development o the basket consumedin the base period. Te question it answers is how much a basket that consumers bought in

the base period would cost in the current period. It is dened as a xed-weight, or xed-basket, index that uses the basket o goods and services and their weights rom the baseperiod. It is also known as a base-weighted index.

Paasche price index: this index measures the price development o the basket that is con-sumed in the current period. Te question it answers is how much a basket that consumersbuy in the current period would have cost in the base period. So it is also dened as a xed-weight, or xed-basket, index, but it uses the basket o goods and services and their weightsrom the current period. It is also known as a current weighted index.

Fisher price index: this price index uses both the baskets rom the base and the currentperiods. It is dened as the (geometric) average o the Laspeyres price index and the Paascheprice index.

Te choice o the index ormula to use oen depends on the availability o data. Te Laspeyresormula does not require inormation on the basket o the current period, while the other or-mulae do. Tereore the Laspeyres ormula is very oen used in practice in price statistics, whichare oen compiled and released rapidly - beore consumption or production inormation or thecurrent period has been collected. In act it is the Laspeyres ormula that has been used in theabove example or a basket consisting o cofee, petrol and milk.

Fixed-base indices and chain indicesTe ormulae presented above apply to a comparison between a base period (0) and the cur-rent period (t). I we were to consider a series o periods, there are two ways o calculating theindices:

Te xed-base method: the price changes between any o the periods are weighted with thevalue shares o one xed base period (illustrated by the top arrows in the graph below). Sincethe diference between the baskets in the current period and the base period will becomelarger as time proceeds, it is necessary regularly to rebase the series and start with a newbase period;


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Basic Concepts 1


Te chaining method: the price changes between any period t and t+1 are weighted withthe value shares o the most recent period or which inormation about the basket is avail-able (lower arrows), i.e. the base period is moved orward by one every period. o calculate

the change between, say, t3 and t0, the annual changes between these years are multiplied(chain-linked).

Note that once we have a series o indices we can compute the price development between anytwo periods. It should be noted that when a xed-base index is rebased, the index on the newbase and the one on the previous base are usually chained together to generate a single priceindex.

t0

t1

t2

t3

Major uses o indices

Price and cost indices have many uses, or example:

Measurement o infation - Ination or the rise in the general level of prices over time canbe measured using a number o diferent indices. From assessing ination aced by privatehouseholds, the most suitable index is the consumer price index. For assessing inationrom the point o view o producers or importers o goods, the producer price indexcanbe the most suitable measure o ination or certain purposes. As or building constructionand housing, on the other hand, the construction cost indexmay provide the most relevantpicture o price trends in these industries.

Calculation o real values (deation) - I we use nominal prices to compare expenditures,wages and GDP gures or diferent time periods, the results obtained are dicult to inter-pret because the value o money has changed over time. Tis problem can be alleviated byconverting these values into constant prices, i.e. into the money o one o the periods in

question. It is also possible to calculate by how much wages or sales have increased in so-called real terms, i.e. over and above ination.

Calculation o indexed values - Te purpose o an index clause is to tie the value o aneconomic commitment to an index so that the commitment maintains its value at the samelevel or the duration o the agreement. Common situations in which ordinary consum-ers are likely to nd index clauses are rental agreements, insurance agreements, collectivelabour agreements and pension agreements. In business and industry, examples o indexclauses include long-term delivery contracts, business and leasehold agreements, and somebuilding and nancial contracts are tied to various indices.


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Consumer Price Indices


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Consumer Price Indices 2


Prices inuence virtually every area o households lives and they are essential to all o us. Howwe live, what we eat, whether we travel by rail or car, where we go on holiday prices are alwaysimportant decision-making criteria. Te issue o changing prices is something that we eel direct-

ly in our wallets. Consumer price statistics thereore play a key role by measuring the inationaced by consumers, i.e. the changes over time in the prices o buying goods and services.

Consumer Price Indices (CPIs) measure thereore the changes over time in the prices o consumergoods and services acquired, used or paid or by households. CPIs aim to cover the whole set ogoods and services consumed within the territory o a country by the population. A representa-tive set o consumer goods and services is selected - the so-called consumer basket - in order tomeasure the price changes. Consumer goods and services include, or example, ood, beverages,products or personal hygiene, newspapers and periodicals, expenditure on housing, water, elec-tricity, gas and other uels, health, transport, communications, education, restaurants and hotels.

Many o these goods and services are bought requently, or are consumed on a daily basis.

CPIs may be used or a wide variety o purposes, including: as a guide or monetary policy; orthe indexation o commercial contracts, wages, social protection benets or nancial instru-ments; as a tool or deating the national accounts or calculating changes in national consump-tion or living standards.

Harmonised index o consumer prices (HICP)

Te HICPs are a set o EU Consumer Price Indices calculated according to a harmonised ap-

proach and a single set o denitions. Te Harmonised Indices o Consumer Prices are designedprimarily or the assessment o price stability in the euro area and convergence in European Un-ion countries and or international comparisons o ination. Tis does not mean that it shouldnot or cannot be used by a wider range o users or other purposes.

Te key HICPs are:

Te Monetary Union Index o Consumer Prices (MUICP) aggregate indices covering thecountries within the euro area;

Te European Index o Consumer Prices (EICP) aggregates indices or all EU countries;Te national HICPs or each o the EU Member States.

Te HICPs or the European Union and or the euro area are calculated by Eurostat using statis-tics provided by the Member States on price changes and the consumption patterns o consum-ers within their economic territories. Beyond these, there are also the European Economic AreaIndex o Consumer Prices (EEAICP), HICPs or individual EEA countries and interim HICPsor urkey (candidate country).


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2 Consumer Price Indices

Table 1: Harmonised indices o consumer prices(Annual average rate o change - %)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006EU 1.7 1.3 1.2 1.9 2.2 2.1 2.0 2.0 2.2 2.2

Euro area 1.6 1.1 1.1 2.1 2.3 2.2 2.1 2.1 2.2 2.2

Belgium 1.5 0.9 1.1 2.7 2.4 1.6 1.5 1.9 2.5 2.3

Bulgaria : 18.7 2.6 10.3 7.4 5.8 2.3 6.1 6.0 7.4

Czech Republic 8.0 9.7 1.8 3.9 4.5 1.4 -0.1 2.6 1.6 2.1

Denmark 2.0 1.3 2.1 2.7 2.3 2.4 2.0 0.9 1.7 1.9

Germany 1.5 0.6 0.6 1.4 1.9 1.4 1.0 1.8 1.9 1.8

Estonia 9.3 8.8 3.1 3.9 5.6 3.6 1.4 3.0 4.1 4.4

Ireland 1.3 2.1 2.5 5.3 4.0 4.7 4.0 2.3 2.2 2.7

Greece 5.4 4.5 2.1 2.9 3.7 3.9 3.4 3.0 3.5 3.3

Spain 1.9 1.8 2.2 3.5 2.8 3.6 3.1 3.1 3.4 3.6

France 1.3 0.7 0.6 1.8 1.8 1.9 2.2 2.3 1.9 1.9

Italy 1.9 2.0 1.7 2.6 2.3 2.6 2.8 2.3 2.2 2.2

Cyprus 3.3 2.3 1.1 4.9 2.0 2.8 4.0 1.9 2.0 2.2

Latvia 8.1 4.3 2.1 2.6 2.5 2.0 2.9 6.2 6.9 6.6

Lithuania 10.3 5.4 1.5 1.1 1.6 0.3 -1.1 1.2 2.7 3.8

Luxembourg 1.4 1.0 1.0 3.8 2.4 2.1 2.5 3.2 3.8 3.0

Hungary 18.5 14.2 10.0 10.0 9.1 5.2 4.7 6.8 3.5 4.0

Malta 3.9 3.7 2.3 3.0 2.5 2.6 1.9 2.7 2.5 2.6

Netherlands 1.9 1.8 2.0 2.3 5.1 3.9 2.2 1.4 1.5 1.7

Austria 1.2 0.8 0.5 2.0 2.3 1.7 1.3 2.0 2.1 1.7

Poland 15.0 11.8 7.2 10.1 5.3 1.9 0.7 3.6 2.2 1.3

Portugal 1.9 2.2 2.2 2.8 4.4 3.7 3.3 2.5 2.1 3.0

Romania 154.8 59.1 45.8 45.7 34.5 22.5 15.3 11.9 9.1 6.6

Slovenia 8.3 7.9 6.1 8.9 8.6 7.5 5.7 3.7 2.5 2.5

Slovakia 6.0 6.7 10.4 12.2 7.2 3.5 8.4 7.5 2.8 4.3

Finland 1.2 1.3 1.3 2.9 2.7 2.0 1.3 0.1 0.8 1.3

Sweden 1.8 1.0 0.5 1.3 2.7 1.9 2.3 1.0 0.8 1.5

United Kingdom 1.8 1.6 1.3 0.8 1.2 1.3 1.4 1.3 2.1 2.3

Iceland 1.8 1.3 2.1 4.4 6.6 5.3 1.4 2.3 1.4 4.6

Norway 2.6 2.0 2.1 3.0 2.7 0.8 2.0 0.6 1.5 2.5

Source: Eurostat (tec0007)

Te HICPs are published each month to a rapid and pre-announced schedule - in general be-tween 14 and 16 days aer the end o each month. Te HICP data which is released covers theprice indices themselves, monthly and annual rates o change, and annual average price indices

and rates o change. None o these are seasonally adjusted.


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Te distribution o purchases o goods and services, and the precise description o some o thegoods and services or which prices are collected, varies rom country to country there is nouniorm European basket. Data are collected according to expenditures which are representa-

tive in each country. Olive oil, or example, has a higher weight in the southern Member Statesthan in the northern ones.

Te table shows the extent o typical monthly price collection or the HICP.

Monthly price collection or the HICP

Observations Outlets surveyedCities/municipalities

surveyedItems surveyed

Euro area total/average 1 758 786 195 150 1 417 713

EU total/average 2 735 338 307 877 2 365 763

Notes: Data collected in April 007. Numbers o observations and outlets stated may exclude some specic price collections, or examplerents and some tarifs; the comparison o the numbers o cities/municipalities is approximate.

Te HICP covers monetary consumption expenditure by all consumers in the territory o acountry, i.e. both residents and non-residents. It excludes interest and credit charges, since theseare nancing costs rather than consumption expenditure. Te prices measured are those actuallyaced by consumers, so or example they include product taxes such as VA and take into ac-count price reductions in end-o-season sales.

As well as the all-items HICPs, a range o around 100 component indices or diferent goods andservices are made available. A urther 34 HICP special aggregates are also released, including orexample the HICP excluding energy and the HICP excluding tobacco.

Te MUICP and EICP are weighted averages or the euro area and the EU, respectively, whichEurostat calculates using HICP data series provided by the Member States. Te resulting head-line ination corresponds to the average o all the goods and services in the HICP basket which,o course, does not correspond exactly to a particular consumers expenditure.

Users should note that HICPs are revisable, i.e. indices may change aer the rst results are pub-lished. HICPs may be revised when provisional estimates are replaced by denitive data or i aneed to make a correction is identied.

The harmonisation process

Te development and production o the HICPs has been ounded on the legal basis put in place.In October 1995 an EU Council Regulation set the legal basis or establishing a harmonisedmethodology or compiling comparable CPIs, as required by the convergence criteria in theMaastricht reaty. Tis has been built on over the years using a series o seventeen, to date, legallybinding implementing regulations, each addressing one or more specic areas o methodology.Te process o harmonisation will continue in uture years.


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Te methods specied in the HICP regulations can usually be applied with some exibility, sincein some cases diferent methods may be used provided their use would not lead to a diferencein the all items HICP o more than 0.1 percentage points in either direction. Te aim has been

to achieve sucient comparability o results rather than the application o uniorm methods inall circumstances.

Quality adjustments

Te need or quality adjustment in the calculation o price indices arises because the nature othe goods and services on the market changes over time. For example, it is not possible to simplycompare the price o a particular car with a similar one sold ve years ago. In the mean timethe quality o that car would have changed the comparison o prices must take account o thequality change. Te price statistician must thereore make a quality adjustment that is, he or she

must estimate what part o the total price change between the two cars was really due to a changein the quality o the car and what part is a genuine price change.

Quality adjustment is widely accepted by price index experts to be one o the most, i not themost, important and dicult issues in price index calculation. For the HICPs there are minimumstandards or quality adjustment explicit quality adjustments must be made whenever possibleand the whole o a price change should never be ascribed to quality diferences without justica-tion. In practice all o the Member States make adjustments or the changing quality o goods andservices in their HICPs using a range o methods. Eurostat and the Member States nationalstatistical oces are at present developing urther quality adjustment standards or the HICP. Te

aim is to agree concrete best practices or a range o specic goods and services and to eliminateover time the use o any quality adjustment methods which is judged to lead to unsatisactoryresults in practice.

Owner-occupied housing

Prices or the consumption o the service provided by owner-occupied housing are currentlyexcluded rom the HICPs. Eurostat is currently carrying out extensive pilot work, together withthe 27 Member States, on the use o an approach based on the acquisition costs o housing whichis new to the household sector (mainly, this concerns newly-constructed dwellings). Indices will

be compiled separately rom the HICPs on an experimental basis beore any decision is made toincorporate them within the HICPs.


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Graph 2: HICP annual ination rates or selected types o products, or EU.January 2002-January 2008, Annual rates o change

-2

-4

-6

0

2

4

6

8

10

12

14

16

Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

Allitems Energy Services

Source: Eurostat (prc_hicp_aind)

The main diferences between HICPs and CPIs

Both HICPs and CPIs measure the ination aced by consumers, i.e. the changes over time in theprices o buying goods and services. HICPs and CPIs are or the most part based on the same

data sources, but they measure ination with diferent aims and thereore sometimes use difer-ent concepts or methods.

For the euro area, the HICP is mainly used or monetary policy purposes. Te ECB denesprice stability as a year-on-year increase o the HICP or the euro area o below, but close to, 2%over the medium term. Te change in consumer prices, as measured by the HICP, is one o theconvergence criteria used to assess whether a Member State is ready to join the euro area. Teseuses require a harmonised conceptual ramework and comparable results. In addition, HICPs arebeing used increasingly or economic analyses in general and or indexation purposes.

Outside the euro area, CPIs play a role in some countries in the area o monetary policy and oreconomic analysis in general, but CPIs also have a wide range o other uses, such as or the in-


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dexation o commercial contracts, wages, social protection benets, and nancial instruments.Te range o uses made o CPIs varies across countries. As a result, methods o calculating CPIvary, and national CPIs are usually not regarded as comparable or cross-country analyses. For

the EU, only the HICPs provide comparable measures o consumer price ination.

Te diferences between HICPs and CPIs may sometimes be signicant in practice, although ingeneral the diferences have been diminishing as national statistical oces have also adoptedHICP standards or their CPIs. Te main diferences are as ollows:

Te coverage o households: Te HICP covers households expenditures taking place withinthe country, whether those households actually live in the country or whether they are mere-ly visiting the country; it also covers institutional households (such as soldiers in barracks,patients in hospitals etc.). CPIs usually record expenditures by resident households, whether

that takes place within the country or abroad and may exclude institutional households;Te coverage and measurement o taxes and ees, and services such as health, social pro-tection, education and insurance services: Te harmonised treatment o these expendituresis a major asset o the HICP. Te HICPs measure the actual prices aced by consumers aertaxes and duties, and net o reimbursements, or example in the case o medicines. CPIs mayadopt diferent approaches, or exclude parts o such expenditures;

Te treatment o owner-occupied housing (OOH): Price changes or OOH are currentlyexcluded rom the HICP. In CPIs they may or may not be included, and where they areincluded the methods used difer substantially.

Access to the data

Eurostat publishes HICPs monthly, generally 14 to 16 days aer the end o the reporting month,and publishes a ash estimate or the euro area on the last working day o the reerence period.Te data are announced via news releases and are available on the HICP section (Eurostat homepage => Special topics: HICP => Data).

Te HICP series begin in 1996 and are presented together on a common reerence year: 2005=100.For more inormation, please reer to the country-specic inormation accessible via the meta-

data page HICP Summary Methodology (Eurostat home page => Special topics: HICP =>Methodology => National HICP practices).

Te complete list o the COICOP/HICP classication (basket) and special aggregates are acces-sible through the classications server (RAMON) on Eurostats website (Eurostat home page =>Methodology => Eurostats Metadata Server (Ramon)).

A specic HICP section is hosted on Eurostats website, under special topics. It gives easy ac-cess to a wide range o HICP inormation, such as: the links to the database, HICP legislation,publications, user support, Frequently Asked Questions, and inormation on key projects and

methodological developments, such as owner-occupied housing, compliance monitoring visitsto Member States and the Eurostat Work Programme on HICP.


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Producer Price IndicesProducer Price Indices


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Producer price indices (PPIs, also called Output Price Indices) measure the gross monthly changein the trading price o products on the domestic and the non-domestic markets, at all stages oprocessing. When combined, the sub-indices or these two markets give the change in the PPI or

a given product. Te PPI is an output index it measures price changes rom manuacturers o aproduct. Te price changes are measured rom the perspective o the seller. Te PPIs are used asan aspect o output or the seller and as a cost actor or the buyer.

Te PPIs are currently available or industrial sectors. PPIs or services are under developmentand will be available by the end o 2008.

Tere are two sets o PPIs:

Domestic producer price index this measures the average price development o all goodsresulting rom an economic activity and sold on the domestic market;

Non-domestic producer price index this shows the average price development (convertedto local currency) o all goods resulting rom an economic activity and sold outside thedomestic market.

Graph 3: Producer price indices, total industry (excluding construction), EU-7.

90

95

100

105

110

115

120

125

Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06

Domesticproducerpriceindex Non-domesticproducerpriceindex Totalproducerpriceindex

Te data collection at European level results rom the Short-erm Statistics Regulation (SS-R)which was adopted in 1998 and amended in 2005. In parallel to the adoption o the legal texts,Eurostat, with the help o Member States, has developed a methodological guide to ensure con-sistent data collection in all countries.

Producer Price Indices 3



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Denition

Te ollowing rules apply to the denition o prices:

Te appropriate price is the basic price, which excludes VA and similar deductible taxesdirectly linked to turnover, as well as all duties and taxes on the goods and services invoicedby the unit, whereas any subsidies on products received by the producer should be added;

I transport costs are included, this should be part o the product specication;In order to show the true development o price movements, it should be an actual transac-tion price, and not a list price;

Te output price index should take into account the quality changes in products;

Te price collected in period t should reer to orders booked during period t (time o theorder), not when the commodities leave the actory gates;

For output prices on the non-domestic market, the price should be calculated at nationalrontiers, FOB (ree on board). Tis means that the seller pays or transportation o thegoods to the port o shipment, plus loading costs, and the buyer pays reight, insurance,unloading costs and transportation rom the port o destination to his actory.

All characteristics that determine the price- o the products - including quantity o units sold,transport provided, rebates, service conditions, guarantee conditions and destination - shouldbe taken into account. Te specication must be such that, in subsequent reerence periods, theobservation unit is able uniquely to identiy the product and to provide the appropriate priceper unit.

Uses o PPIs

Monthly measurement o output prices meets the need or inormation on the short- and medi-um-term economic activity o the Member States and the EU. Te PPI data are widely used byboth the business community and government, and enable monthly monitoring o prices at di-erent stages o the manuacturing process. Tere are three major uses o PPIs:

As an economic indicator PPIs capture price movements prior to the retail level. Tereore,they may oreshadow subsequent price changes or businesses and consumers. Tey can bean early indicator o inationary pressures in the economy. Tese data are used in ormulat-ing scal and monetary policies;

As a defator o other economic series PPIs are used to adjust other economic time seriesor price changes;

As the basis or contract price adjustments (escalation) PPI data are commonly used inescalating purchase and sales contracts. Tese contracts typically speciy amounts o money

to be paid at some point in the uture. It is oen desirable to include an escalation clause thattakes account o increases in input prices.


3 Producer Price Indices


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In many countries, there is a big demand or PPIs rom the business and trade organisations.As these indices have already been in existence or decades, they are part o economic lie ornational accountants and businesses. For these uses they need to be maintained by the national

statistical institutes at a detailed level. Many medium-sized and small countries calculate detailedPPIs beyond the requirements o the EU Regulation in order to satisy a national demand.

Coverage and aggregations

All Member States are obliged to transmit data at 2-digit level o the NACE classication (astandard Classication o Economic Activities in the European Community, see Annex 1) or:

Mining and quarrying (Section C);

Manuacturing (Section D);Electricity, gas and water supply (Section E).

Te PPI data are based on selling prices reported by establishments o all sizes selected as beingrepresentative o the whole population. Regular collection o prices data normally ows rom asample o units and a sample o their products. Data are generally collected using mainly postalquestionnaires or by telephone surveys, and increasingly by electronic means.

Te basic sampling method used varies rom one national statistical authority to another (cut-ofsampling or sampling proportional to size are applied) and depends on the market that is being

studied i.e. domestic or non-domestic. On the domestic market, the sample o enterprises isnormally drawn rom the Statistical Business Register. Te observation units or the PPI or thenon-domestic market are very oen selected rom external trade data. Samples or the PPI or thenon-domestic market are generally much smaller than those or the domestic market.

Weights are based on turnover inormation rom the Structural Business Statistics database or oninormation coming directly rom Member States. Weights and base years are revised every veyears. Te current base year is 2000.

Diferences between PPIs and CPIs

It is oen assumed that the direction and magnitude o price change in the PPI or nished goodspregures a similar change in the CPI or all items. When this assumed relationship is contra-dicted by the actual movements o the two series, as it oen is, many data users ask why the PPIand CPI show diferent price movements.

Te answer is that conceptual and denitional diferences between the PPI and CPI contribute tothe diferences in their price movements. Both the PPI and CPI measure price change over timeor a xed set o goods. A primary use o the PPI is to deate revenue streams in order to measurereal growth in output. A primary use o the CPI is to adjust income and expenditure streams or

changes in the cost o living.




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Graph 4: Comparison o producer and consumer price indices or paper products.

EU27 Domesticoutputindex(2000=100)Manufactureofpulp

EU27 Domesticoutputindex(2000=100)Manufactureofpaperandpaperboard

EU27 Domesticoutputindex(2000=100)Manufactureofcorrugatedpaperandpaperboard

andofcontainersofpaperandpaperboardEU27 HICPIndex, rescaled2000=100 Newpapers, booksandstationery

EU27, fromextra EU27Imports, Crudematerials, inedibleexceptfuels UVI(2000=100)

50

60

70

80

90

100

110

120

130

Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07

Te diferent uses cause denitional diferences that can be put into the ollowing two maincategories:

Te composition o the set o commodities and services Te target set o goods and servic-es included in the PPIs is the entire marketed output o the producers. Te set includes bothgoods and services purchased by other producers as inputs to their operations or as capital

investment, and goods and services purchased by consumers either directly rom the serviceproducer or indirectly rom a retailer. Because the PPI target is the output o the producers,imports are excluded. Te target set o items included in the CPI is the set o goods and serv-ices purchased or consumption purposes by the households. Tis set includes imports;

Te types o prices collected or the included goods and services Te price collected or anitem included in the PPIs is the revenue received by its producer. Sales and excise taxes arenot included in the price because they do not represent revenue to the producer. Te pricecollected or an item included in the CPI is the expenditure by a consumer or the item.Sales and excise taxes are included in the price because they are necessary expenditures bythe consumer or the item.




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Table 2: Index o total output prices, total industry (excl. construction), gross data.Annual average price changes compared to previous year (%)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006EU-7 0.6 -1.0 -0.3 4.5 1.5 -0.4 0.8 2.4 4.6 4.9

Euro area 0.7 -0.9 -1.2 4.2 1.5 -0.6 0.5 1.9 3.5 4.4

Belgium : : : : : 0.4 -0.5 4.4 2.6 5.0

Bulgaria : : : : : : : : 7.9 12.1

Czech Republic 4.9 4.7 0.7 5.2 2.2 -2.7 0.1 4.9 1.4 0.1

Denmark 1.7 -0.5 0.4 4.7 5.1 1.9 0.1 2.2 7.1 6.1

Germany 1.3 -0.3 -0.8 3.3 2.3 -0.3 1.0 1.2 3.3 4.2

Estonia 8.8 4.2 -1.2 4.9 4.4 0.4 0.2 2.9 2.1 4.5

Ireland 0.4 2.6 1.9 7.5 1.7 -1.1 -8.0 -2.3 0.1 1.1

Greece 2.9 2.7 2.1 7.5 2.8 2.0 1.6 3.9 5.3 6.1

Spain : : : : : : : : : :

France -0.7 -1.7 -1.7 2.9 0.9 -1.2 0.2 1.7 2.6 2.9

Italy : : : : : : : : : :

Cyprus : : : : 1.2 2.0 2.8 5.4 4.9 4.1

Latvia : : -4.0 0.6 1.7 0.9 3.2 8.6 7.8 10.4

Lithuania : : 1.7 15.9 -3.0 -2.8 -0.5 6.0 11.5 7.4

Luxembourg : 1.7 -4.8 4.9 -0.2 -0.8 1.5 8.7 8.0 7.5

Hungary : : 5.1 11.6 5.1 -1.8 2.4 3.5 4.7 6.5

Netherlands 3.6 -2.8 -0.4 14.3 1.5 -1.7 1.3 3.5 7.9 7.6

Austria -0.2 -0.4 -1.0 4.3 0.2 -1.1 -0.1 1.7 3.1 1.8

Poland 12.5 7.5 5.8 7.9 1.8 1.1 2.6 7.1 0.7 2.2

Portugal : : : : : : : : : :

Romania : : : : 38.1 -9.8 63.0 19.1 10.5 11.6

Slovenia : : 3.4 7.3 7.1 3.8 1.3 2.6 1.9 2.3

Slovakia : : : : : : : 2.6 5.4 5.7

Finland -0.4 -2.3 -5.0 2.5 -2.1 -3.0 -1.8 -0.1 1.9 4.6

Sweden 0.7 -1.0 -1.0 3.9 2.1 0.0 0.1 0.8 4.0 4.9

United Kingdom -1.5 -3.2 1.3 4.7 -0.8 -0.6 1.7 3.7 10.5 7.4

Norway 0.5 -9.3 14.6 29.7 -2.7 -3.3 3.5 11.8 16.6 12.9

Switzerland : : : : : : : : : :

Source: Eurostat (ebt_inpp_a)




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Access to the data

Te industrial output price index is published monthly. Countries send data to Eurostat no later

than one month and 5 days aer the end o the reerence period. Eurostat publishes the Europeanprice index one month and 5 days aer the reerence period.

Data, the latest publications and background inormation are available on the short-term busi-ness dedicated section on Eurostat website (Eurostat Website => Teme Industry, rade andServices => Data => Industry, rade and Services horizontal view => Short erm Businessstatistics Monthly and Quarterly).




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Import and Export Price IndicesImport and Export Price Indices


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International trade is an important part o world economy and has a particular importanceor the economies o EU Member States. Precise gures on the trends in trade are essential orthe monitoring o the economy. International trade statistics published by Eurostat are in cur-

rent prices, i.e. in prices relevant to the reerence period concerned. However, the developmento trade ows over time is determined by variations in price and volume. It is necessary or anumber o analytical purposes to distinguish these two elements. Te availability o indicatorson the development o import and export prices makes it possible to:

Distinguish real growth o imports/exports rom price changes in oreign trade statistics andthe national accounts;

Analyse competitiveness o countries or products in international markets;Analyse how changes in exchange rates are passed on to import and export prices;Forecast uture prices in the domestic market.

Tere are two types o methods to measure the price development in international trade:

Unit value indices (UVIs) these are compiled rom detailed import and export merchan-dise trade data, derived rom customs declarations or extra-EU trade and rom Intrastatreports or intra-EU trade;

Price indices (XMPIs ) these use data rom surveyed establishments on the prices o rep-resentative items exported and imported; the surveyed prices are those o items that aredened according to detailed specications, in order that the change in prices o the sameitem specication can be measured over time.

Unit value indices (UVIs)

A traditional method o measuring the development o prices and volumes in international tradeis to calculate Unit Value Indices (UVIs) based on detailed trade data. External trade data containinormation on the values and quantities o goods traded between countries at a very detailedproduct and partner country level: thereore, by using appropriate index ormulas, it is possibleto calculate UVIs and corresponding volume indices.

Eurostat calculates UVIs or European aggregates (EU and euro area) and or the EU MemberStates using detailed intra- and extra-EU trade data provided by Member States. Tese data areavailable by 8-digit codes o the Combined Nomenclature (CN) and by partner countries. Tisis also the level at which elementary unit values (trade value divided by quantity) are calculated.Tere are about 10 000 eight-digit codes in use, which enables unit values to be calculated at avery detailed level.

rade statistics apply harmonised principles in the valuation o goods. Te statistical value is thevalue at the national rontier. It is an FOB value (ree on board) or exports and a CIF value (cost,insurance, reight) or imports. For measuring quantity, the most common unit is the net mass.For some CN-codes quantity is also recorded in a supplementary unit, such as number o items,litres or cubic metres.

Import and Export Price Indices 4



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In the rst stage o the calculation process, items that display extremely large unit value move-ments are excluded rom the calculation o unit values. Te same applies to items which are un-suitable or unit value measurement, or example ships or aeroplanes. Aer removing the outliers

rom the data, these elementary unit values are then divided by the average unit value o the pre-vious year to obtain elementary unit-value indices. For products whose unit values are rejected,the changes are drawn up in line with those o similar products.

In the second stage, elementary unit value indices are then aggregated over countries and com-modities, using the Laspeyres, Paasche and Fisher ormulae. Te UVIs disseminated by Eurostatare o the chained Fisher type. Te chaining procedure has an advantage in that the weights usedare more relevant to the periods measured and it also makes it easier to deal with the annualchanges to the CN. In the nal phase, the published indices are chained back to the reerenceyear. Te current reerence year or the unit value and volume indices is 2000.

Many EU Member States also calculate UVIs, but these may difer rom Eurostat UVIs. UVIscalculated by Member States may be based on a diferent methodology, the data at national levelmay difer rom data available at Community level and breakdowns o published indices maynot be same.

UVIs calculated by Eurostat have to support various Community needs. In order to ensure har-monised compilation o UVIs or European aggregates, Eurostat calculates these UVIs itselrather than constructing them rom UVIs compiled by Member States. As all the detailed dataneeded or calculation are available, it is relatively easy to make changes to the classications andbreakdowns o disseminated indices, or instance in the case o EU enlargement.

Indices are available or both exports/dispatches and imports/arrivals or a large number o part-ner countries and geographic and economic zones, cross-analysed by various product classica-tions (SIC Rev 3, BEC and CPA).

Price indices

Another way to measure the development o price movements is to collect price quotations di-rectly rom the importers and exporters by means o a statistical survey. Te price indices shouldtrack movements o consistent items over time. Te collection, compilation and dissemination othe price indices are under the responsibility o the National Statistical Institutes.

wo kinds o price indices based on external trade data may be produced:

Export Price Indices (XPIs) these measure changes in the prices o the goods and servicesprovided by the residents o a given economic territory/country and used by non-residents(the rest o the world). Tey are also known as non-domestic output price indices;

Import Price Indices (MPIs) these measure changes in the prices o goods and serv-ices provided by non-residents (rest o the world) to residents (the economic territory orcountry).


4 Import and Export Price Indices


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Import Price Indices (MPIs)

Te purpose o MPIs is to measure the monthly trends in the transaction price o imported goods

and related services purchased rom non-domestic areas by domestic residents. All characteris-tics that determine the price o the products are taken into account, including quantity o unitssold, transport provided, rebates, service conditions, and terms o guarantee. Member States thathave adopted the Euro as their currency are required to make a distinction between importprices rom the euro area and rom the non-euro area.

Te ollowing rules apply or the denition o import prices:

Te appropriate price is the price as paid by the observation unit that includes all duties andtaxes on the goods and services to be borne by the observation unit, but excludes deductibletaxes. Import taxes are thereore included in the price;

In order to show the true trend o price movements, it should be an actual transaction price,and not a list price; thereore discounts should be deducted rom the price. List prices maybe acceptable only i actual transaction prices cannot be obtained;

Te price index should take into account quality changes in products;Te price in period t should reer to orders booked during period t (moment o order), notthe moment when the commodities leave the actory gates; transport costs should be calcu-lated in a consistent way;

Other characteristics o the products that determine transport price should also be treated in a consistent way. I service conditions change, or example, this should be reected in anappropriate price change;

Intra-company transers should be taken into account provided that these transers arebased on prices, which are market based or market inuenced;

Te transer o ownership o boats and aircra or similar products rom a person establishedin a non-member country to a person established in the Member State in question countsas an import;

Te basic sampling method used varies rom one national statistical authority to another. It gen-erally involves a three-stage sampling process: selecting a sample o product groups (importheadings); selecting a sample o enterprises or similar units under each import heading; andselecting specic commodities (items) to be priced.

Data are collected through various channels, such as sel-administered questionnaires, touch-tone data entry, telephone interviews, e-mail surveys or a combination o these.

Te ormulas used or building up the indices are either a constant weight Laspeyres price indexwithout annual chaining or an annually chained Laspeyres-type index. Weights in the constantweight Laspeyres index are chained every ve years.




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Te main source o weights is oreign trade statistics, but some countries also use national ac-counts data. Te methods used or dealing with quality changes, new products, disappearance oproducts and missing observations vary rom country to country.

UVIs versus XPIs/MPIs

Te price indices may prove to be much better indicators o price change than UVIs or com-modities with large diferences in characteristics and types, and commodities or which qualitychange is important: typical examples are ships, aircra or computer equipment. Te Short-ermStatistics regulation (SS-R) allows Member States to compile inormation on output prices ornon-domestic markets and import prices using unit value indices or products originating romoreign trade or other sources. However, this use is only allowed i there is no signicant dete-

rioration in quality compared to specic price inormation. A ew countries still rely on UVIs tocompute part o the import/export prices indices.

Te cost o producing UVIs is much lower than or price indices, because UVIs data are obtaineddirect rom customs administration documentation, whereas collecting specic prices or XPIs/MPIs involves all the expenses associated with a survey.

Te coverage o UVIs is very nearly exhaustive, while price indices have to be based on samples.

Graph 5: Comparison o Unit Value Index or Exports with Export Price Index.

Trade between euro area countries and non-euro area countries

(2000=100)

Euroarea - Exportpriceindex(Totalindustry, excludingconstruction)

Euroarea - Unitvalueindex - Exports(Totalforallproducts)

95

100

105

110

Jan-05 Jul-05 Jan-06 Jul-06 Jul-07Jan-07


4 Import and Export Price Indices


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Graph 6: Comparison o Unit Value Index or Imports with Import Price Index.

Trade between euro area countries and non-euro area countries

(2005=100)

95

90

100

105

110

115

Jan-05 Jul-05 Jan-06 Jul-06 Jul-07Jan-07

Euroarea - Importpriceindex(Totalindustry, excludingconstruction)

Euroarea - Unitvalueindex - Imports(Totalforallproducts)

Access to the dataUVIs are available on the Eurostat website, theme External rade => Data => External trade ag-gregated data => External trade short-term indicators.

Te import price indices or euro area Member States and export price indices are available onthe Eurostat home page => Teme Industry, rade and Services => Data => Industry, rade andServices horizontal view => Short erm Business statistics Monthly and Quarterly).

According to the regulation on Short erm Statistics, export and import price indices are pub-lished 45 days aer the end o the reerence period.

Te Combined Nomenclature can be ound on the Eurostat website => Methodology => Euro-stats Metadata Server (Ramon).




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Purchasing Power Parities


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Purchasing Power Parities (PPPs) are indicators o price level diferences across countries. Teyindicate how many currency units a given quantity o goods and services will cost in diferentcountries. PPPs can thus be used as currency conversion rates to convert expenditures expressed

in national currencies into a common currency, eliminating diferences in price levels acrosscountries. Tis common currency is reerred to as the Purchasing Power Standard (PPS). PPPsare the only indicators in this publication that are primarily designed or comparison betweencountries rather than or comparison over time.

Te main use o PPPs is to convert national accounts aggregates, such as the Gross DomesticProduct (GDP) o diferent countries, into comparable real expenditures. Applying nominal ex-change rates in this process would mean that countries with high price levels would have theirGDP overvalued relative to countries with low price levels. Te use o PPPs ensures that the GDPo all the countries is valued at a uniorm price level and thus only reects diferences in the

actual volume o the economy.

Dividing PPPs by the nominal exchange rate gives a Price Level Index (PLI) or each country andproduct group. At the level o GDP, PLIs express the general price level o a given country relativeto another country or group o countries.

Within the ramework o the Eurostat/OECD PPP Programme, Eurostat is currently producingPPPs or the 27 EU Member States and 10 other European countries (three candidate countries,three member states o the European Free rade Association, and our Western Balkan countries)on an annual basis, in close cooperation with the National Statistical Oces o the participatingstates. Te Organisation or Economic Cooperation and Development (OECD) coordinates asimilar exercise in the non-European OECD member countries. Te OECD exercise is closelyintegrated with that o Eurostat.

Computation, aggregation and output

o compile PPPs, prices o a basket o comparable and representative goods and services arecollected in all participating countries. For consumer products, about 3000 products in total arepriced. In addition, inormation is gathered on prices or housing, investment goods (includingconstruction services) and government services. Te data collection or consumer goods and

services is carried out in continuous cycles. Each cycle takes three years and comprises six sur-veys, two per year. Tis means that each product is priced once every three years.

PPPs are calculated in three stages:

At the product level price relatives are calculated or individual goods and services;At the product group level the price relatives calculated or the products in the group areaveraged to obtain PPPs or the group;

At the aggregation level the PPPs or the product groups are weighted and averaged toobtain weighted PPPs or the aggregate. Te weights used to aggregate the PPPs in this thirdstage are the national accounts expenditures or each product group.

Purchasing Power Parities 5



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Tree sets o indices are typically derived using PPPs:

Indices o real nal expenditure Tese are volume measures that reect the relative mag-

nitudes o the product groups or aggregates being compared. At the level o GDP they areused to compare the economic size o countries;

Indices o real nal expenditure per inhabitant Tese are standardised measures o vol-ume that reect the relative levels o the product groups or aggregates being compared perhead o the population. At the level o GDP they are oen used to compare the economicwell-being o the inhabitants o diferent countries;

Comparative price levels Tese are the ratios o PPPs to exchange rates. At the level oGDP they provide a measure o the diferences in the general price levels o countries. Tecoecient o variation o comparative price levels is applied as an indicator o price conver-

gence among EU Member States.

Map 1: Comparative price level indices or household nal consumption expenditure,EU-7, 006.

Source: Eurostat (tec0007)


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Te most requently used derived indicator is real GDP per inhabitant, which is the GDP per heado the population divided by the PPPs. An important use o this indicator is in the allocation ostructural unds within the EU. Regions where real GDP per capita is less than 75 per cent o the

EU average (taken over a period o three years) are eligible or support rom the structural unds.

An example o the practical application o PPPs

In a given year, assume that the total GDP o France is 1 791 953 million euros and that o theUnited Kingdom 1 299 622 million pounds. Our task is to compare the relative size o the twocountries economies.

In order to make these gures comparable, we could decide to simply convert the GDP gure othe United Kingdom into euros at the nominal exchange rate o, say, 0.6817 pounds to the euro:

1906443EUR6817.0

1299622GBP=

Te gures or France and the United Kingdom, expressed in euros, can now be used to calculatea value index or the two countries, with France as the arbitrarily chosen base country:

France: United Kingdom:

100100*1791953

1791953

= 4.106100*17919531906443

=

Apparently, the United Kingdom economy is 6.4 per cent bigger than that o France. However,although the GDP gures o both countries are now expressed in euros, and thus are ormallycomparable, they overestimate the relative size o the United Kingdom economy. Tis is because,or both countries, they contain a price component and a volume component, while the pricelevel o France is lower than that o the United Kingdom.

In order to avoid this bias, and to compare the volume component only, we convert the GDP oboth countries into a common, articial currency (PPS) and a common price level, using the

PPPs rom Eurostats database instead o the nominal exchange rate:


1673159PPS0710.1

1791953EUR= 1688698PPS

0.7696

GBP1299622=




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Tese gures are expressed in the same currency and in the same prices, and thus represent realexpenditures or volumes. Tey are only meaningul in a comparison across countries, and there-ore should preerably be expressed as volume indices. Te volume indices, again with France as

the base country, can be calculated as ollows:


100100*1673159

1673159= 9.100100*

1673159

1688698=

It thus appears that the United Kingdom economy is just 0.9 per cent bigger than that o Francewhen the price level diference between the two countries is taken into account. In practice, a 0.9

per cent diference will not be considered as statistically or economically signicant. We will there-ore conclude that the GDP o the United Kingdom is o a similar magnitude to that o France.

A similar exercise can, o course, be undertaken with expenditure aggregates other than totalGDP, such as household consumption expenditure, or example. For a per capita volume com-parison, the per capita GDP or other expenditure in national currency should be converted usingPPPs instead o nominal exchange rates as in the example above.

Table 3: GDP per capita in Purchasing Power Standards

at current prices (EU-27=100)

2001 2002 2003 2004 2005 2006

EU-7 100 100 100 100 100 100

Euro area 113.8 112.9 112.1 111.1 111.0 110.2

Belgium 124.0 125.6 123.5 124.4 123.0 122.2

Bulgaria 29.4 31.1 32.6 33.6 35.2 37.1

Czech Republic 70.5 70.8 73.7 76.1 77.0 79.3

Denmark 128.4 129.0 124.7 124.5 126.3 126.6

Germany 117.1 115.7 117.1 116.1 114.6 113.6

Estonia 46.3 50.1 54.6 57.0 62.8 67.9

Ireland 133.1 138.5 141.1 142.4 144.0 142.8Greece 79.0 83.0 83.9 84.9 86.9 88.4

Spain 98.5 100.9 101.4 100.9 102.5 102.4

France 116.2 116.5 112.3 112.1 114.2 112.8

Italy 118.3 112.4 111.2 107.6 105.4 103.7

Cyprus 91.3 89.5 89.1 91.3 93.6 93.2

Latvia 38.9 41.4 43.5 45.5 50.2 55.8

Lithuania 41.6 44.2 49.2 51.1 53.8 57.7

Luxembourg 235.1 241.3 247.7 252.7 263.0 278.6

Hungary 59.1 61.7 63.6 63.9 64.8 65.3


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Malta 78.2 79.9 78.7 75.9 75.9 75.5

Netherlands 134.3 134.0 129.9 130.3 131.9 132.1

Austria 127.6 127.9 129.0 128.8 128.6 128.7

Poland 47.8 48.5 49.1 50.8 51.0 52.9

Portugal 77.6 77.4 77.0 75.2 75.4 74.4

Romania 27.6 29.4 31.5 33.6 34.4 37.6

Slovenia 79.0 81.3 82.5 85.0 86.6 88.8

Slovakia 52.6 54.5 55.2 56.7 59.8 62.7

Finland 116.2 115.7 113.5 115.9 114.5 116.3

Sweden 120.0 119.2 120.5 120.4 119.1 120.3

United Kingdom 118.1 118.9 120.0 121.8 119.6 119.1

Croatia 43.8 45.7 47.6 49.0 49.9 49.9

Former Yugoslav Republic o Macedonia 25.3 25.1 25.7 26.0 26.9 27.4

Turkey 26.5 27.3 27.0 27.9 28.5 29.4

Iceland 132.8 130.3 126.1 130.9 135.5 135.8

Norway 161.8 155.4 157.0 164.5 178.5 186.9

Switzerland 140.5 139.9 136.5 135.9 135.1 135.9

Source: Eurostat (tsieb011)

Access to the data

Te PPPs are compiled on an annual basis. wice a year, in June and December, the most recentprice survey results and national accounts data are incorporated into the calculation. Te PPPs,PLIs and volume indices or GDP, its main sub-aggregates and a selected number o so-calledanalytical categories are published in Eurostats dissemination database.

Preliminary results are published 12 months aer the end o the reerence year. Tese prelimi-nary results are revised twice, namely 12 months and 24 months aer the end o the reerenceyear. Te nal PPPs and PLIs are calculated aer 36 months. Tese PPPs and PLIs are nal in-asmuch as the calculation will not be repeated to obtain new PPPs when countries subsequently

revise their GDP estimates or the reerence year.PPP data are available on the Eurostat website => Economy and Finance => Data => Prices.




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National Accounts Defators


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National accounts aggregates, such as the Gross Domestic Product (GDP), are compiled bothat current prices and at constant prices. Te constant price value o an aggregate is derived in aprocess called deation in which the current price value is divided by a price index, the dea-

tor. Constant price values are also labelled volumes and express the value o the aggregate ithe underlying quantities were to be multiplied by the prices o a base year.

Te price indices used in the deation process can be CPIs, PPIs, export and import price indi-ces, etc. In the national accounts, the inormation rom these diferent sources is compared andintegrated to arrive at a single measure. Te GDP deator is oen used as a general measure oination, as it encompasses all price changes in the economy, as experienced by households, busi-nesses and governments alike. Te deator o household nal consumption expenditure is analternative measure o ination as experienced by consumers. It may difer rom the CPI becauseo diferences in the coverage o goods and services, or methodological diferences between CPI

and national accounts, but also because the national accounts deators incorporate inormationrom other price statistics.

National Accounts Deflators 6



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Labour Cost Index


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Te Labour Cost Index (LCI) is an essential part o the range o statistics that are relevant or anunderstanding o the inationary process and the dynamics o the labour market. It measuresthe development over time o hourly labour cost. Hourly labour cost is the cost incurred by

the employer in the employment o labour, divided by the number o hours worked in a givenperiod. Inormation on labour costs is o major importance or economic and monetary poli-cies, wage bargaining and economic analyses. Labour costs are an important potential source oination since they account or a large proportion o the total costs borne by private businesses,which may pass higher labour costs on to consumers via higher end prices, thus uelling ina-tion. A timely labour cost index is thereore o the utmost importance or the European CentralBank in order or it to be able to monitor ination in the euro area. o observe the progress oeconomic convergence, it is essential not only to be able to monitor labour cost on the Europeanlevel but also to compare the development on the Member State level. Finally, inormation onthe development and level o labour cost is relevant or social partners in the context o wagenegotiations.

Eurostat has published the Labour Cost Index or all Member States, the euro area and the EUon a quarterly basis since 1996.

Computing and aggregation

Te LCI shows the short-term development o the total cost to employers o employing the la-bour orce on an hourly basis. In other words, the LCI measures the cost pressure arising rom

the production actor labour. Te LCI is dened as the Laspeyres index o labour costs per hourworked, chain linked annually and based upon a xed structure o economic activity at NACERev.1 section level (see below). Te current reerence year o the index is 2000. In addition to theindex numbers, annual and quarterly growth rates o labour cost are also calculated.

Data are available or the EU aggregates and or EU Member States. Te LCI covers all produc-tion units in the NACE sections considered.

EU aggregates are obtained as weighted aggregates o the national data. Te weights reect theshare o labour costs that each Member State has in the total EU aggregate. o calculate theweights, labour costs expressed in national currencies are converted into a common currency,

the euro.

Data are broken down by cost items (otal cost, Wages and salaries, Other labour costs) and byeconomic activity (NACE sections).

Te term labour costs covers the ollowing main components:

Wages and salaries including bonuses, pay or piecework, and shi work, allowances, ees,tips and gratuities, commission and remuneration in kind. Tey are recorded in the periodduring which the work is done. Ad hoc bonuses or other exceptional payments (13th monthpay, back-dated pay arrears, etc.) are recorded when they are due to be paid. Figure 1 gives a

schematic overview o urther disaggregations.

Labour Cost Index 7



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Other labour costs: Employers social contributions or urther disaggregation, see Figure 2;

Vocational training costs (excluding wages and salaries or apprentices) expenditure onvocational training services and acilities (also those or apprentices, but not their wagesand salaries), small repairs and maintenance o buildings and installations, excluding stafcosts; expenditure on participation in courses; the ees o instructors rom outside theenterprise; expenditure on teaching aids and tools used or training; sums paid by the en-terprise to vocational training organisations, etc. Subsidies linked to vocational trainingshould be deducted;

Other expenditure paid by the employer recruitment costs (these are the sums paidto recruitment agencies, expenditure on job advertisements in the press, travel expenses

paid to candidates called or interview, installation allowances paid to newly recruitedstaf, etc.) and working clothes provided by the employer. Tis does not include adminis-trative running costs (oce expenses, staf wages, etc.);

axes paid by the employer this variable covers all taxes based on the wage and salarybill or on employment (these taxes are regarded as labour costs). Tis variable also coverspenalty taxes (linked to employment) to be paid in some European countries by employ-ers or employing too ew handicapped persons, and similar taxes or ees;

Subsidies received by the employer are subtracted rom the labour costs. Subsidies are allamounts received in the orm o subsidies o a general nature intended to reund part orall o the cost o direct remuneration but not intended to cover social-security or voca-tional-training costs. Tey do not include reunds paid to the employer by social securityinstitutions or supplementary insurance unds.


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Disaggregation o the component Wages and salaries

Figure 1

Payments toemployees

savings schemes

Wages and salaries

Wages and salarieso apprentices

Wages and salariesin kind

Payments ordays not worked

Payments toemployees

savings schemes

Direct remuneration,bonuses andallowances

Directremuneration,bonuses and

allowances paidin each pay

period

Directremuneration,bonuses and

allowances notpaid in each pay

period

Companyproducts

Stafhousing

Companycars

Stockoptions

and sharepurchaseschemes

Otherpayments

in kind

Wages and salaries(excluding apprentices)

Disaggregation o the component Employers social contributions

Figure 2

Employers social

contributions

Employers imputed socialcontributions

(excluding apprentices)

Employers actual socialcontributions or

apprentices

Payments toemployeesleaving theenterprise

Employers actual socialcontributions

(excluding apprentices)

Statutory socialsecurity

contributions

Other imputedsocial

contributionso the

employer

Collectivelyagreed,

contractual andvoluntary social

securitycontributions

Guaranteedremunerationin the event o

sickness

Employersimputed socialcontributionsor pensions

and health care

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Te LCI covers the ollowing economic activities:

Industry (NACE sections C to E): C - Mining and quarrying, D - Manuacturing, E - Elec-tricity, gas, water supply.Construction (NACE section F);Services (NACE sections G to K): G -Wholesale and retail trade, repair o motor vehicles,personal and household goods, H -Hotels and restaurants, I -ransport, storage, communi-cation, J - Financial intermediation, K - Real estate, renting, business activities;

Non-market services (NACE sections L to O): L Public administration and deence, com-pulsory social security, M - Education, N - Health and social work, O - Other community,social and personal service activities (ull coverage will be available starting rom the rst

quarter o 2009).All series are working-day adjusted; this means that diferences in hourly labour cost which arisedue to a varying number o working days are corrected or. Also, all series are available on aseasonally adjusted basis. Seasonal adjustment corrects or inra-annual variations in the labourcost index which can arise due to recurring events, such as new school and university graduatesentering the labour market in the autumn.

Graph 7: Quarterly labour cost index.

Total nominal hourly labour costs, NACE C to K

% change compared to same quarter o previous year, working day adjusted

0

1

2

3

4

5

6

1997q01 1998q01 1999q01 2000q01 2001q01 2002q01 2003q01 2004q01 2005q01 2006q01 2007q01

Euroarea

EU-27

Source: Eurostat (lc_lci_q)


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Table 4: Quarterly Labour Cost Index

(Total labour cost, NACE sections C-K; index or 2000=100)

2005q02 2005q03 2005q04 2006q01 2006q02 2006q03 2006q04 2007q01 2007q02

EU-7 119.7 120.5 121.6 122.4 123.4 124.4 125.3 126.5 127.4

Euro area 116 116.8 117.7

construction rates

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