Index of Producer Prices of Industrial Products (Domestic Sales)

Transcription

1 Federal Statistical Office Methodical Guide Index of Producer Prices of Industrial Products (Domestic Sales) Publication interval: irregular English version published in May 2011 Specialist information on this publication can be obtained directly from the Federal Statistical Office: Group V A 2, Tel.: +49 (0) 611 / ; Fax: +49 (0) 611 / or erzeugerpreise@destatis.de Federal Statistical Office, Wiesbaden 2011 Duplication and dissemination, including of excerpts, is permitted provided the source is quoted.

2 Table of contents Page 1 of 4 as per: May 2011 Table of contents List of abbreviations List of figures List of tables 1. Introduction A. Preliminary remarks B. Legal basis C. Definitions D. Brief description of the development of producer price statistics E. Structure of the methodical guide 2. Background, purpose and use A. The system of price statistics in the Federal Republic of Germany B. What do indices tell us? C. What are they used for? 3. Scope and classifications A. Universal set B. Prices C. Geographic coverage D. Statistical observation units E. Classification systems E.1 General E.2 Classification of economic activities E.3 Classifications of goods E.4 Particularities 4. Weighting A. Introduction B. Data sources B.1 Sales statistics B.2 Production statistics B.3 Other sources C. Calculation method C.1 Approximate weights up to WZ-4 C.2 Sub-division to GP-9 level C.3 Particularities D. Updating and comparability D.1 Updating D.2 Comparability 5. Samples A. Introduction B. Data sources C. Selection of the basket of goods

3 Table of contents Page 2 of 4 as per: May 2011 C.1 Selection of the 9-digit GP codes C.2 Consequences for the weighting scheme D. Selection of the undertakings E. Selection of the price representatives F. Dealing with changes 6. Data collection A. Introduction B. Periodicity and time B.1 Frequency B.2 Time of the data collection C. Product specifications C.1 General C.2 Goods description C.3 Sales conditions C.4 Particularities D. Organisation of the data collection D.1 Design D.1.1 Traditional collection sheet D.1.2 Online questionnaire D.2 Procedure D.2.1 Initial collection in a reporting unit D.2.2 Ongoing price collection D.3 Alternative methods E. Data verification E.1 Have all reports been filed and are they complete? E.2 Plausibility E.2.1 Individual datasets E.2.2 Datasets in context E.3 Procedure with implausibilities F. Particularities F.1 Missing data F.1.1 Temporarily-missing data F.1.2 Permanently-missing data F.2 Treatment of seasonal products 7. Quality changes A. Introduction B. Adjustment methods with quality changes B.1 Overview B.2 Direct price comparison B.3 Chaining B.4 Change in quantity B.5 Overlap pricing B.6 Matched model B.7 Option prices B.8 Expert assessment B.9 Hedonics C. When does which method make sense?

4 Table of contents Page 3 of 4 as per: May Product replacement and inclusion of new goods A. Introduction B. Evolutionary and revolutionary products B.1 Evolutionary products B.1.1 Definition B.1.2 Possibilities for inclusion B.2 Revolutionary products B.2.1 Definition B.2.2 Possibilities for inclusion C. Adjustments of the product sample C.1 General C.2 Basket item does not exist C.3 Basket item exists 9. Index calculation A. Introduction B. Elementary indices B.1 Overview B.2 Calculation method in Germany B.3 Particularities C. Calculation of higher aggregated indices C.1 Overview C.2 Calculation method in Germany C.3 Particularities D. Rebasings D.1 General D.2 Method followed in Germany D.3 Formation of long series D.4 Problems 10. Special problems of individual products A. Overview B. Mineral oil products C. Machinery D. Data processing appliances and electronic components E. Ships and aircraft F. Electricity G. Natural gas 11. Sources of error A. Introduction B. Weighting scheme C. Samples C.1 Basket of goods C.2 Reporting units C.3 Price representatives D. Data survey E. Quality changes F. Product replacement and new goods G. Index calculation

5 Table of contents Page 4 of 4 as per: May 2011 G.1 Elementary index G.2 Aggregation 12. Organisation and quality assurance A. Introduction B. Rebasing C. Index calculation 13. Dissemination A. Introduction B. Publication of current results B.1 Press releases B.2 Fachserie 17, Reihe 2 B.3 Long series B.4 Genesis-Online C. Publication in cross-sectional publications C.1 Energy C.2 Statistical yearbook ("Statistisches Jahrbuch") and "Wirtschaft und Statistik" C.3 Eurostat D. Publication of meta information D.1 Classifications and brief description D.2 Quality report E. Contact with users E.1 Information service E.2 Consideration of the wishes of major users Glossary Index List of Annexes

6 List of abbreviations Page 1 of 1 as per: May 2011 List of abbreviations n.e.c. BGW BStatG CPA CPC EEX EU Eurostat ECB GP IDEV ISIC IMF MWh NACE OECD PreisStatG PRODCOM UN VDEW VDMA WZ not named elsewhere Bundesverband der Deutschen Gas- und Wasserwirtschaft e. V. (German National Gas and Water Industry Association) Act on Statistics for Federal Purposes (Federal Statistics Act Bundesstatistikgesetz) Classification of Products by Activity Central Product Classification European Energy Exchange, headquartered in Leipzig European Union Statistical Office of the European Communities European Central Bank Product Classification for Production Statistics (Güterverzeichnis für Produktionsstatistiken) Internet Datenerhebung im Verbund (Combined Internet Data Collection) International Standard Industrial Classification of all Economic Activities International Monetary Fund Megawatt hour Nomenclature statistique des Activités économiques dans la Communauté Européenne Organisation for Economic Cooperation and Development, Act on Price Statistics (Gesetz über die Preisstatistik Preisstatistikgesetz) List of Products of the European Community United Nations Verband der Elektrizitätswirtschaft e.v. (Electricity Industry Association) Verband Deutscher Maschinen- und Anlagenbau e.v. (German Machinery and Equipment Production Association) Classification of Economic Activities (Klassifikation der Wirtschaftszweige)

7 List of figures Page 1 of 1 as per: May2011 List of figures Chapter 2 - Background, purpose and use Figure 2.1 Overview of the German system of price statistics Chapter 3 - Scope and classifications Figure 3.1 Hierarchical organisational structure of an undertaking Figure 3.2 Overview of the classifications of economic activities Figure 3.3 Overview of the classifications of goods Figure 3.4 Example of classification according to the Product Classification for production statistics (GP 2009) Chapter 4 - Weighting Figure 4.1 Base years since 1950 Chapter 5 - Samples Figure 5.1 Universal set of producer price statistics Figure 5.2 Selection steps in taking the sample Figure 5.3 Example of a completed price survey sheet Chapter 6 - Data collection Figure 6.1 Start template of the online questionnaire Figure 6.2 Template for the price report in the online collection Figure 6.3 Change template in the online collection Figure 6.4 Treatment of seasonal products Chapter 8 - Product replacement and inclusion of new goods Figure 8.1 Overview of the possibilities in the event of product replacement and inclusion of new goods Figure 8.2 Method with new products Basket item does not exist Figure 8.3 Method with new products Basket item exists Chapter 9 - Index calculation Figure 9.1 Index calculation method Figure 9.2 Rebasing flow chart Figure 9.3 Schedule of rebasing Chapter 10 - Special problems of individual products Figure 10.1 Sales levels with electricity in Germany Figure 10.2 Sales levels with natural gas in Germany Chapter 12 - Organisation and quality assurance Figure 12.1 Approximate rebasing process Figure 12.2 Overview of the working steps in rebasing Figure 12.3 Approximate index calculation process

8 List of tables Page 1 of 2 as per: May 2011 List of tables Chapter 3 - Scope and classifications Table 3.1: Various types of statistical units Table 3.2: Structure of the classification of economic activities (WZ 2009) Table 3.3: Overview of the GP codes of the producer price index of industrial products (domestic sales) Table 3.4: Examples from the juxtaposition of the classification of economic activities vs. the classification of goods Chapter 4 - Weighting Table 4.1: Overview of secondary sources in the calculation of the weighting scheme Table 4.2: Calculation of the consumption tax and of the corrected production value (in each case in Euro 1,000) for cigarettes (in 2005) Table 4.3: Distribution of the fine weights of the 4-digit WZ codes among the goods types Table 4.4: Sales events of economic activity D (Energy supply) and E (Water supply) Chapter 5 - Samples Table 5.1: Example of a product sample Table 5.2: Proportional assignment of the weights to the basket items of the 4-digit code (example) Table 5.3: Excerpt from the weighting scheme 2005 Table 5.4: Selection of the undertakings for the sample of reporting units Chapter 6 - Data collection Table 6.1: Sales conditions in the product specification Table 6.2: Identifiers for reasons for price changes Table 6.3: Excerpt from the plausibility rules for datasets in context Chapter 7 - Quality changes Table 7.1: Price series with quality change Table 7.2: Direct price comparison Table 7.3: Chaining Table 7.4: Change in quantity Table 7.5: Overlap pricing Table 7.6: Matched model Table 7.7: Option prices Table 7.8: Expert assessment Table 7.9: Hedonics Table 7.10: Comparison of the quality correction methods Chapter 9 - Index calculation Table 9.2: Comparison of the change rates September 2003 vs. January 2000 on base 2000 and on base 1995

9 List of tables Page 2 of 2 as per: May 2011 Chapter 10 - Special problems of individual products Table 10.1 Basket items for mineral oil products (GP 192) Table 10.2 Overview of the price indices calculated by hedonic methods Table 10.3 Goods classes of the basket of goods from goods division 30 - Other vehicles, base 2005 = 100 Table 10.4 Basket items for electricity, base 2005 = 100 Table 10.5 Basket items for natural gas (distribution), base 2005 = 100 Chapter 11 - Sources of error Table 11.1 Weighting scheme 1995 and 2000, sub-division of the change into price-related and real shares Table 11.2 Weighting schemes 2000 and 2005 Chapter 12 - Organisation and quality assurance Table 12.1: Working steps of rebasing

10 Chapter 1 Introduction Page 1 of 5 as per: May Introduction A. Preliminary remarks 1 B. Legal basis 1 C. Definitions 2 D. Brief description of the development of producer price statistics 3 E. Structure of the methodical guide 4 A. Preliminary remarks 1.1 The methodological guide aims to describe all essential aspects of the calculation of the index of producer prices of industrial products (domestic sales) in Germany. This addresses users of the statistics both from the political arena and from the business community, as well as associations and the public as a whole, and enterprises which report the prices, without whose cooperation the job cannot be done. 1.2 This text is to make it possible for all who are interested to understand the structure and the background of the producer price index and to make sensible use of the results. It is to be possible to assess the significance and relevance of the index in order to make possible all types of interpretation and further use for users. 1.3 The guide is structured in such a way that individual chapters can also be studied in greater depth independently of one another. Improvements which have been made to the methods used in ascertaining the index of producer prices of industrial products (domestic sales) necessitate constant updates of individual sections and chapters. The guide is regarded as a dynamic piece of literature, changes in the environment and in the framework conditions requiring a high degree of flexibility. Some of the passages are consequently being constantly adjusted in line with current circumstances. B. Legal basis 1.4 Price statistics in the Federal Republic of Germany are based on various national statutes and international regulations. There are two fundamental legal provisions in the national legislation on this topic which are described below. Starting with the general legal basis for drafting federal statistics, specific focus is then placed on the basis for price statistics. The last paragraph deals with international regulations at EU level. 1.5 The Federal Statistics Act (Bundesstatistikgesetz BStatG) of 22 January 1987 (Federal Law Gazette [BGBl.] Part I pp. 462 and 565), most recently amended by Article 2 of the Act of 9 June 2005 (Federal Law Gazette Part I p. 1534), regulates the basics of official statistics, as well as the tasks of the Statistical Offices. This includes general preconditions for the implementation of statistics, as well as rules for carrying out the surveys, and uniform definitions of terms within the statistics. It is fundamentally determined which preconditions must be met to implement the surveys and how these are to take place. In this regard, section 5 of the Federal Statistics Act explicitly states that federal statistics only may be implemented if they are ordered in a statute or a legal provision. A request by a supreme federal authority in accordance with section 7 of the Federal Statistics Act is sufficient for special purposes. It is also established what information is to be provided to respondents. In accordance with section 17 of the Federal

11 Chapter 1 Introduction Page 2 of 5 as per: May 2011 Statistics Act, all respondents are to be informed of the framework conditions and the basis, as well as of collection characteristics and auxiliary characteristics. Section 16 of the Federal Statistics Act deals with the precise requirements as to the confidentiality of the individual pieces of information. It is defined here in which cases individual pieces of information on personal and factual circumstances are to be kept confidential. 1.6 Fundamental requirements for price statistics at federal level are provided by the Act on Price Statistics (Gesetz über die Preisstatistik PreisStatG) of 9 August 1958 (Federal Law Gazette Part III item No ), most recently amended by Article 16 of the Act of 19 December 1997 (Federal Law Gazette Part I p. 3158). Section 3 of this Act provides with regard to the index of producer prices of industrial goods (domestic sales) that industrial undertakings are obliged to provide information. The Act also prescribes a maximum number of undertakings that are under such an obligation. Prices for agriculture and forestry, as well as industrial goods at the stage of production or extraction, treatment and processing, wholesale trade, retail trade and foreign trade may be collected from a maximum of 34,000 undertakings, which are obliged to provide information. Section 8 of the Act on Price Statistics stipulates that a monthly survey of the prices is carried out. 1.7 At international level, Council Regulation (EC) No 1165/98 of 19 May 1998 concerning short-term statistics (OJ EC L 162 p. 1), most recently amended by Regulation (EC) No 1158/2005 of the European Parliament and of the Council of 6 July 2005 (OJ EU L 1914 p. 1) 1 stipulates amongst other things requirements as to producer price statistics for the purpose of creating a standard framework for drawing up Community statistics on economic trends. The EU s short-term statistics regulation, as well as the accompanying supplementary regulations, first and foremost prescribes definitions and delimitations on systems to be used, the level of detail of the results to be delivered to Eurostat, as well as the deadlines and the form of the data transmission. 1.8 Indications of sources of the various statutes and ordinances named here can be found in the Annex. C. Definitions 1.9 The index of producer prices of industrial products (domestic sales) measures the price changes of industrial products sold at home by domestic undertakings of mining and quarrying, of manufacturing and energy and water supply. The terms producer price index or index of producer prices are treated as synonyms in this guide An index expresses the change as against a base period, this being assigned the standard value of 100. All index manifestations hence illustrate for the portrayed element the percentage change as against the base period. They are compiled to form a total index in the German producer price statistics according to the method of Laspeyre. This means that the prices for the observed goods are weighted with volume weights of a fixed base year The producer price index looks at the price development for various sales events of specific goods types. To this end, systems are used to classify goods and economic activities using which it is possible to clearly allocate and delimitate the spectrum of domestic production. 1 Below: EU short-term statistics regulation.

12 Chapter 1 Introduction Page 3 of 5 as per: May Prices are collected for the selected sales events which are set in relation to a base price. The price is defined as the market value of a unit of a good which the producer earns in domestic sales. The unit of a good is determined here not only by its physical characteristics, but also by the conditions at which it is sold. All charges and taxes on goods are included, apart from value-added tax. Here, goods are to be observed with qualities which are uniform over time so that the price differences that are reported are exclusively caused by changed prices, and not by different qualities in the various periods. D. Brief description of the development of producer price statistics 1.13 With the assistance of the producer price index, the average change in the price level of industrial products is portrayed in reference to a fixed base period The universal set of the producer price statistics theoretically consists of all sales events in Germany of industrial products sold by domestic undertakings of the economic activities mining and quarrying, manufacturing, as well as energy and water supply. When selecting the samples, representative products can be compiled to form a shopping basket in the first stage on the basis of evaluations of the quarterly production survey carried out in the production industries at the greatest level of detail (9-digit items of the Product Classification for Production Statistics (GP)). The individual items in the basket are identified by the 9-digit GP code In the second stage, also on the basis of the results of the quarterly production statistics, the undertakings are selected which are to be used for the monthly price report. One selection criterion is the value of the sales production for the respective item in the basket. The selected undertakings (reporting firms) are called on to report prices on a recurrent basis by sending the requisite survey documents In the third stage, the reporting firms use established criteria to determine representative sales events of the corresponding basket items for which prices are reported. Here they must provide a precise description both of the goods and of the selected sales conditions. Goods descriptions and sales conditions together form the price-determining characteristics. The price representatives thus selected are coded with the aid of a unique processing number. This 11-digit processing number is composed of the 9-digit GP code and of a recurrent 2-digit item code. The processing number is the central classification characteristic of producer price statistics Because of the high degree of fluctuation in the samples, firms and price representatives which have permanently ceased to report are to be replaced. The procedures that have been described are used analogously here The weighting scheme is calculated in a top-down procedure parallel to the compilation of the basket. Here, each item in the basket is allocated a weight (weight share) with which the corresponding product group enters the index calculations. The weights represent the share that the corresponding basket item had among total domestic sales of the industries mining, manufacturing and energy (sections B, C, D and E of the Classification of Economic Activities) in the base year. An adjustment of the weights takes place at regular intervals, the current base year being The monthly price survey among the reporting firms is carried out with the aid of a

13 Chapter 1 Introduction Page 4 of 5 as per: May 2011 specially-prepared questionnaire or via the Internet. The key date for the survey is the 15th of the month. A monthly check of completeness and a data plausibility check take place in the Federal Statistical Office Measurements are formed in a first step for each individual price representative in order to calculate the indices. These express the price change of the observation period to the base period. The summary of the measurements takes place in a two-stage procedure. Firstly, an elementary index is formed from the price series of a basket item by forming averages. To this end, the unweighted arithmetic mean of the individual measurements of the elementary aggregate (Carli index) is ascertained In the next step, to further calculate the index of the producer prices of industrial products (domestic sales), the elementary indices are summarised to form total indices. The Laspeyre method is used for this, in which the elementary indices of the individual basket items are summarised with fixed weights of the base period to form aggregated indices. By using the Laspeyres index, the price change pure and simple from one period to the next is portrayed with constant volumes in all periods. Since the volume structures change over time because of new market situations, the weights and the samples have to be adjusted necessary at regular intervals. For this reason, rebasings are carried out every five years; the basket and the weights are then adjusted to the current market conditions The Federal Statistical Office publishes the results of the producer price statistics in various media (printed and electronic). In addition to a press release, standardised result tables are provided in printed form and online via the internet homepage of the Federal Statistical Office. Internet-based databases (Genesis-Online) may also be used. Over and above this, the Federal Statistical Office provides a standardised quality report on producer price statistics on the Internet which describes the most important methodical aspects of the statistics. E. Structure of the methodical guide 1.23 The goal pursued by this methodical guide is to demonstrate all methodical aspects which are important to ascertain the index of producer prices of industrial products (domestic sales). Both the establishment of all calculation bases in rebasing, and also the working steps to be implemented on a monthly basis, are explained here. With the aid of this description, the background of the index calculation, as well as the upstream work, is presented in a comprehensible form, and hence the necessary information is delivered to all interested users of the statistics in order to simplify the use and interpretation of the results The structure of the methodical guide is in line with the Producer Price Index Manual: Theory and Practice 2, published by the IMF, the focus in this guide being on the practical aspects. Its first chapters provide fundamental information on the background to and use of the index, as well as delimitations regarding the area of application, the definitions and the classifications used. This is followed by a discussion of the essential basis for calculation the weighting scheme and samples. Chapter 6 Data collection kicks off the description of the work to be implemented on a monthly basis in connection with ascertaining the index. The following chapters describe the approach followed in changes in the product quality and inclusion of new goods, whilst Chapter 9 deals with the index calculation. The particularities of individual 2 Producer Price Index Manual: Theory and Practice, published by the International Monetary Fund, ISBN X.

14 Chapter 1 Introduction Page 5 of 5 as per: May 2011 products are a component of Chapter 10; Chapter 11 does on to discuss potential sources of error and ways to deal with these. Organisational preconditions and procedures in the Federal Statistical Office and measures for quality assurance are discussed in Chapter 12. The conclusion of the guide is formed by Chapter 13 Dissemination, which discusses the various possibilities to gain access to the data The text is followed by a glossary which provides brief definitions of the most important terms used and an index, as well as the Annex, which lists all important documents and background information.

15 Chapter 2 Background, purpose and use Page 1 of 4 as per: May Background, purpose and use A. The system of price statistics in the Federal Republic of Germany 1 B. What do indices tell us? 3 C. What are they used for? 3 A. The system of price statistics in the Federal Republic of Germany 2.1 The index of producer prices of industrial products (domestic sales) is an element of a complex system of price statistics which are calculated at regular intervals mostly on a monthly basis by the Federal Statistical Office and the Land Statistical Offices. These statistics make it possible to show both temporary and local price differences. Measuring price developments over time is the most important task of price statistics. Temporary price developments on different economic levels are shown in this context. When it comes to the local price comparison, the price level in various towns, Federal Länder or states is compared in order to calculate differences in level which for instance are needed to adjust the remuneration abroad of civil servants and soldiers. 2.2 The statutory basis for the collection of statistical data on prices is formed by the Act on Price Statistics (Gesetz über die Preisstatistik PreisStatG) of 9 August 1958 (Federal Law Gazette [BGBl.] Part III item No ), most recently amended by Article 16 of the Act of 19 December 1997 (Federal Law Gazette Part I p. 3158). This regulates amongst other things which price statistics are to be implemented at federal level. 2.3 Figure 2.1 provides a brief overview of the various indices which are calculated in Germany for the purposes of a price comparison over time. 2.4 The system of price statistics takes account here of the complete value chain of the production of goods, regardless of whether these are physical goods or services. The German system of price statistics portrays the price development on all major economic levels, from production through trade to consumption. 2.5 At the level of production, in addition to producer price indices of industrial products also price indices of agricultural and forestry products, as well as construction price indices, are calculated. Producer price indices for services are currently being developed. Initial results of a pilot study for the fields of legal consultancy and auditing and tax advice are already available; further price indices for services are in the course of being introduced. At the level of distribution, the system of price statistics contains indices of wholesale prices and retail prices, whilst the level of private consumption is portrayed by consumer price indices. Price tendencies in relations with foreign markets are portrayed by the import and export price indices. By these means, all areas of the economy are covered by price indices in the system of price statistics. 2.6 The delimitation between the individual sets of statistics emerges from the different levels of the economy in which the prices are surveyed and from the definition of the prices surveyed. 2.7 Producer price indices are surveyed at the level of production, whilst indices are

16 Chapter 2 Background, purpose and use Page 2 of 4 as per: May 2011 ascertained for various product groups; the delimitation takes place in line with the economic activity and goods classifications used 1. Figure 2.1 Overview of the German system of price statistics 2.8 The producer price is defined here as the contribution received by the producer from the purchaser. This is the current transaction price achieved on conclusion of contract. Valueadded tax is not an element of the producer price since it is an excise tax which is a zero-sum game for producers. By contrast, consumption taxes and parafiscal charges do count towards the calculation of producer prices. 1 cf. on this Chapter 3 - Scope and classifications, section E.

17 Chapter 2 Background, purpose and use Page 3 of 4 as per: May Price indices are used to depict the average change in the price level from one period to the next. The producer price index of industrial products depicts the price development of goods from the mining, manufacturing and energy industries produced and sold at home. The producer price statistics do not as a rule contain any calculations of absolute prices. The indices rather show the percentage price change over time. One exception is mineral oil products, where in addition to price indices absolute prices are also published for selected goods. B. What do indices tell us? 2.10 Price indices are among the most important indicators for observing long-term and short-term economic development in Germany. The index of producer prices of industrial products (domestic sales) provides monthly data at the stage of production on price developments of goods of the mining, manufacturing and the energy industries produced and sold domestically The major significance of the producer price index emerges from its authoritativeness for the further stages of the value added chain. Price developments which are initially observed in production influence the downstream economic stages in the next periods. Analyses of consequences on the development of the consumer price index are particularly significant as a central measure of inflation The producer price index is published not only as an overall index for all industrial products, but also in detail for individual groups of goods at different aggregation levels. In this way, special statements can be made for individual industries and the influence of individual groups of goods on changes in the overall index becomes clear Calculating price indices at different aggregation levels makes it possible to analyse the impact of price changes at producer level on the price development of the downstream stages in individual areas. All types of price change at the producer level have greater or lesser impacts in later periods on the price development in trade and consumption The index is calculated regularly every month; publications with final results are already available in the next month, so that the topicality of the data is guaranteed. Since the producer price index gives the average changes in the price level from one period to the next, its authoritativeness depends on the composition and topicality of the basket. This represents the entire domestic production with the aid of the individual basket items. Adjustments of the basket in line with economic developments and changes in the production structure are hence carried out at regular intervals in order to ensure representativeness over a long period. C. What are they used for? 2.15 There is a national and international demand for price indices from the political arena and from administrations, as well as from economic associations and other organisations, and from private individuals. They support the various users in political and economic decisionmaking, where in addition to the consumer price index in particular the index of producer prices of industrial products (domestic sales) finds a use in many areas Central significance attaches to the producer price index for the monetary and

18 Chapter 2 Background, purpose and use Page 4 of 4 as per: May 2011 interest policy of the European Central Bank, the central task of which lies in ensuring the stability of the currency. This monetary stability is measured against the level of inflation, the most important indicator of which is the consumer price index. Price indices at upstream economic levels also including the producer price index show inflation tendencies at an early date, and are hence highly important benchmarks for the monetary policy of the Central Bank By portraying price developments at the economic stage of production, inflationary trends can already be recognised at the first levels of the value added chain. Price developments depicted in the producer price index hence support short-term economic analyses in the political arena and the business community. The producer price index serves here in particular as a shortterm indicator in the observation of long-term and short-term economic development, and is a basis for the decision-making of a great deal of market players In addition to the public administration, there is also demand for the results of the producer price index from undertakings and associations. They use the results to make statements on future trends and developments, also within individual sectors, so that the indices are used to support market analyses Equally, contracts frequently refer to the producer price index. Since the latter depicts the general price development at producer level, particularly in long-term contracts individual contractual elements are tied to the price development of the index as a whole or of specific goods aggregates which are depicted by the index. Such indexing clauses in contracts refer to the producer price index, so that changes directly impact elements of the contract tied to it the index in the economy. By these means, for instance, price indices for steel as a reference value are used for price adjustments in contracts in the construction industry; tariffs for the transportation of goods by HGV are very frequently tied to the price development of important cost elements (HGVs, diesel fuel) Germany has also undertaken towards international organisations, including the European Central Bank, the International Monetary Fund and the OECD, to collect the producer price index on a monthly basis and to transmit the corresponding data. To this end, all the required information is provided to Eurostat, the Statistical Office of the European Communities, which provides the Members data to the other institutions in a database. Individual organisations require different results and publish information from the various States. International comparisons and observations of trends in the various states can thus be implemented. In order to make the individual country data comparable, international standards are used to ensure the uniformity of calculating the price indices within the European Union In addition to external users of the producer price index from home and abroad, it is also used for other statistics within the Federal Statistical Office. Internal users need the results for further calculations of their own statistics. For instance, producer price indices in the field of the national accounts serve to correct prices of values (deflating). The producer price index is used here to calculate values in constant prices. Also in calculating volume indices in industrial statistics, the prices are corrected using the producer price indices. The production, sales and new orders index is obtained from the industrial statistics with the support of the producer price index since the latter makes it possible to calculate price-corrected values Because of the multifarious uses to which the results are put, the constancy in calculating and the reliability of the results are in the interest of the political arena and the administration. One consequence of this is that the Federal Statistical Office is highly interested in delivering high-quality data.

19 Chapter 3 Scope and classifications Page 1 of 11 as per: May Scope and classifications A. Universal set 1 B. Prices 1 C. Geographic coverage 3 D. Statistical observation units 4 E. Classification systems 5 A. Universal set 3.1 In statistics, a universal set is defined as the set of all potential subjects of study for a specific question. In ascertaining the producer price index of industrial products (domestic sales), this theoretically includes all contracts concluded for the sale of industrial products produced and sold by domestic undertakings in the mining, manufacturing and energy industries. 3.2 The question of whether a contract concluded in the sphere of business falls within the universal set, and is hence a potential object of observation of producer price statistics, therefore depends on the following criteria: - Attribution of the undertaking to specific economic activities - Domestic domicile of the undertaking - Classification of the goods produced and sold within specific groups of goods - Domestic production and sale of the products 3.3 Every undertaking can be attributed to a certain economic activity depending on its business focus. The undertakings of the universal set of the producer price statistics fall within the economic activities of mining and quarrying, manufacturing of goods, and electricity, gas and water supply; a detailed description of the underlying classification is provided in Section E.2. The undertakings have to be domiciled in Germany, and the individual sales events must relate to industrial products attributed to a specific group of goods with the aid of the Product Classification for Production Statistics (cf. Section E.3). In addition, production and sale of the goods must be effected in Germany. 3.4 Being limited by these criteria, the universal set comprises a vast variety of transactions effected every day, whose full observation is impossible. 3.5 The producer price index of industrial products (domestic sales) is ascertained on the basis of a multi-stage sampling procedure (cf. Chapter 5 Samples) from this universal set involving the selection first of products and undertakings and then of representative sales events meeting all delimitation criteria of the universal set. The most recent sample is comprised of approx. 9,000 price series for 1,272 basket items that are reported by around 5,000 undertakings. B. Prices 3.6 The ascertainment of the producer price index of industrial products (domestic sales) involves monthly price surveys for selected products. The calculation is based on the prices

20 Chapter 3 Scope and classifications Page 2 of 11 as per: May 2011 earned for a specific sales event on conclusion of a contract on the key date. To this end, the reporting undertakings describe representative sales events that are realised as regularly as possible in this form. To ensure comparability over time, the transactions have to be described in detail. The description of the transaction includes the exact description of the product on the one hand and of the conditions of sale on the other (cf. Chapter 6 Data collection). 3.7 The product description serves to specify the goods to be observed, so that the reporting unit can unmistakably identify the product. The conditions of sale do not relate to the product directly, but to the price-determining characteristics of the transaction. 3.8 The provision of detailed information on the product and the conditions of sale allows one to distinguish in the event of a price change between product-related changes (change of quality or quantity or change of the conditions of sale) and price changes pure and simple. Only price changes pure and simple for identical sales events are included in the calculation of the index. Any change in the product specifications requires adjustments (cf. on this Chapter 7 Quality changes) to be made before making further calculations for the index, since quality changes have to be eliminated before calculating the index. 3.9 The monthly prices reported are as a rule ex-works prices, forwarding charges being included only where this is typical of the sales event. For instance, it is customary in the sale of fresh concrete for the manufacturer to deliver the concrete directly to the construction site. The forwarding charges are consequently part of a typical sales event and must hence be considered in the price reported. The reported price includes consumption taxes such as mineral oil tax including green tax, tobacco tax, beer tax, tax on liquors, and electricity tax; however, value added tax is not included. Parafiscal charges, which include the petroleum stocking levy (Erdölbevorratungsbeitrag EBV), are also included in the reported price. If possible, the reported transaction prices should be those actually earned on the market for the previously-specified product under the specified conditions of sale. Reporting of average prices and list prices should be avoided The average price is defined as the quotient of the sales generated and of the quantity of goods sold from one product group. Consequently, this price depends on the structure of the quantities sold. This may vary in the different periods, sparking a change in the average price even when the prices of the individual products remain constant. For this reason, reporting of average prices should be avoided Under certain conditions, however, the submission of average prices is arranged with reporting firms. This is carried out in particular where the company has a very broad range of products within the product group and no special focus. It is however important in this regard for identical structures to be used in the calculation of the average price in two consecutive reporting periods. This means that in a given month under report a comparable average price of the previous month is reported as the weighted average of the previous month s prices with the structure of the month under report The use of list prices or offer prices should be avoided if possible. They do not reflect real contracts concluded, as for instance discounts and similar particularities of real transactions are not taken into account In exceptional circumstances, however, the reporting of list prices can be arranged with reporting firms. This is effected above all when the observed product is made to constantlychanging customised specifications. Due to various designs, contractual terms and other

21 Chapter 3 Scope and classifications Page 3 of 11 as per: May 2011 aspects, a direct price comparison is not expedient. In many cases, however, firms can provide offer or list prices for certain basic models that are regularly adapted to the market situation. At least in the medium term (i.e. in an annual comparison in most cases), the development of these list prices reflects the calculated cost and profit situation of the undertaking, and can be viewed as a rough indication of the price development The prices reported to the Federal Statistical Office are those earned on a key date, namely the 15 th of every month under report, for real sales events of a specified good. Fixing a specific date makes it easier to report the price of a specific sales event for the reporting parties, as it makes price observation less laborious It should be noted here that major price fluctuations that may occur between the two reporting dates in two consecutive periods are not portrayed. Hence, where prices are reported with regard to a certain key date, price changes will only be reflected in the calculation of the index if the fluctuation occurred precisely on the key date of the observation. Consequently, the index does not reflect the general development, but the specific development of this single sales event. In seeking to put into perspective this source of error and to obtain sound data, adequate sample sizes are used. By summarising several price series, the real price development of a product group is portrayed on average Where reporting firms are unable to supply key date prices, it is also permissible to report monthly average prices for equivalent contracts concluded (comparable product descriptions and conditions of sale). If no new contracts were concluded for the selected product in the month under report, it is also possible to provide well-founded estimations of the price that could have been earned in the light of the current market situation In addition to direct surveys of undertakings, various secondary sources are used in some sectors to ascertain price reports. For instance, use is made of stock exchange quotations for certain raw materials and energy forms. The quotations of the European Energy Exchange in Leipzig (EEX) are used for instance in the field of electricity. Another possibility for price reports from secondary sources are various associations that can supply information about their sectors. In addition, current price reports for specific products are obtained via Internet searches or gathered from newspapers. Information about prices from the Internet corresponds to the prices that can be earned on the market, as this constitutes a transparent market situation with real purchasing conditions. C. Geographic coverage 3.18 The producer price index of industrial products (domestic sales) as part of the price statistics system of the Federal Republic of Germany aims at portraying price developments of goods produced by domestic firms and sold at home. Products manufactured and sold abroad are not included. The price developments of these foreign trade activities are depicted by own price indices, the import price index and the export price index The regularly calculated combination of the producer price index of industrial products (domestic sales) and the export price index represents the price development of the entire sales of an economic activity or of a product group. This index is determined as a weighted arithmetic mean value of the two base indices, with the domestic and foreign sales figures serving as weights.

22 Chapter 3 Scope and classifications Page 4 of 11 as per: May Problems may arise from the limitation to one domestic domicile of a company when the structure of the undertaking changes or production is relocated. The geographic location of the production site is decisive for the producer price index. Changing market conditions resulting from fluctuations, mergers and relocations may require quick adaptations and flexible action to ensure that the index continues to include only price reports made by domestic undertakings for products sold in Germany A special procedure is required where domestic production sites are maintained, but distribution and pricing of the produced goods are effected by divisions of the undertaking or outside companies that are domiciled abroad. Whilst the actual production is carried out in Germany, the reporting unit is no longer able to report the current prices due to the relocation of the distribution activities. In such cases, the Federal Statistical Office seeks to obtain price reports from the divisions of the undertaking in charge of distribution from abroad. In contrast to domestic firms, however, these are not obliged to provide information about the prices, so that collecting information requires a major effort and it is not always possible to obtain the current price reports An additional special aspect of the geographic coverage of the producer price index is that it is calculated only on the federal (national) level. No regional results are ascertained and published, consequently not even on the level of the federal Länder. D. Statistical observation units 3.23 Statistical observation units are the units that provide the basis for statistical surveys and calculations. Therefore, they constitute the suppliers of statistical information in the framework of surveys. Statistical units are the subject of observation and the elements used in the aggregation of statistical results There are various types of statistical unit playing different roles in the process of generating statistics. The following table provides an overview of the various units and gives examples for each type. Table 3.1: Various types of statistical units Question Statistical unit Example Who reports? Reporting unit Controller of the undertaking Report is made about whom? Observation unit Branch office of the undertaking Which mass is depicted? Unit of depiction Results about divisions Which mass is analysed? Analytical unit Sales situation 3.25 The statistical observation unit is critical in the collection of the data. In producer price statistics, it is ideally the part of the business specialised in the subject matter An undertaking can be classified into units on various hierarchy levels. From an organisational point of view, it consists of different establishments which in turn are sub-divided into various specialised establishment sections. The undertaking can operate in various sectors and at various locations. These locations are referred to as establishments. Production of the

23 Chapter 3 Scope and classifications Page 5 of 11 as per: May 2011 various goods of a plant is divided up among the specialised establishment sections. The individual specialised sections of an establishment therefore produce goods from various sectors. Every single level is attributed to an economic activity depending on the focus of its business activities. While in attributing the undertaking and the establishment to an economic activity, the entire product range of the economic entity is considered and attribution is based on the top-selling economic activity, one specialised establishment section is usually focused on the production of a specific segment of the product range and attributed to an economic activity accordingly. Therefore, an undertaking comprises various establishments that may classify within various economic activities. Even the specialised sections of one establishment may produce different goods in the specialised establishment sections, and classification in different economic activities is hence possible on this level, too. Figure 3.1 Hierarchical organisational structure of an undertaking Undertaking Establishment 1 Establishment 2... Establishment n Specialised sections establishment m 3.27 Information on the sales figures of individual economic activities is required to ascertain the producer price index of industrial products (domestic sales). The specialised establishment sections are used as the statistical observation units for this information. The sales figures of these specialised establishment sections are used as a basis for ascertaining the weighting scheme (cf. Chapter 4 Weighting). The Federal Statistical Office obtains the information about the various sales figures attained in the specialised plant sections by surveying the establishments To conduct the monthly price survey for the individual price representatives, the prices are collected from the establishments. These are usually in charge of distributing and pricing the goods produced by the specialised establishment sections, and can therefore report the current prices to the Federal Statistical Office. In some cases, prices are determined by the undertaking or other establishments in charge of distributing the products. In these cases, the establishment producing the goods is no longer the reporting unit as it cannot provide information about the current prices. E. Classification systems E.1 General 3.29 A classification system defines a structure that enables uniform classification of the universal set. Each element classifies unambiguously within one category of the system. A comprehensive classification scheme provides for structuring by assigning various subgroups to the individual groups, and thus creating hierarchy levels. This allows for the formation of

24 Chapter 3 Scope and classifications Page 6 of 11 as per: May 2011 aggregates of individual items of data. The basis for developing a system is the assignability of all elements of the universal set to exactly one of the lowest classification levels; each aggregate is assigned in turn to exactly one higher level, until the highest aggregate covers the entire universal set. The scheme defines the basic structure and classification of elements When deciding to use a specific classification scheme it must be verified that the scheme covers the universal set and provides for its assignment to the various levels. For the producer price index of industrial products (domestic sales) this means that both the industrial structure and the current production must be depicted by the classification scheme. With the aid of the scheme, each element of the universal set is clearly assigned to a classification level; overlapping is not possible. The classification of the products should be based on a logical principle and portray the real world, with the individual product line constituting the bottom level of the classification hierarchy As the classification scheme constitutes the basis for ascertaining the producer price index of industrial products (domestic sales), it should have long-term relevance. Otherwise, no comparisons over time and time series will be possible in calculating the index. Likewise, the classifications used should be coherent with systems used in other sets of statistics Two different systems are used in Germany to ascertain the producer price index. On the one hand, an institutional classification of the economic entities by economic activities is implemented. To this end, the economically-active entities (undertakings, establishments, specialised establishment sections) are classified according to the focus of their activities. On the other hand, a classification by goods is implemented, with the individual product constituting the criterion of delimitation. E.2 Classification of economic activities 3.33 On an international level, various classification schemes exist to classify economic activities, whose structures are based on similar classifications of the hierarchy levels. Figure 3.2 provides an overview of the major systems on the UN, EU and national levels. Figure 3.2 Overview of the classifications of economic activities Economic activities UN EU Germany ISIC Rev. 4 NACE Rev. 2 WZ 2008

25 Chapter 3 Scope and classifications Page 7 of 11 as per: May The ISIC 1 Rev. 4 classification scheme is the scheme used at UN level. This system classifies each economic entity according to its economic focus. Here, the main product manufactured by the observed entity is decisive. The system provides classification by industries and industrial activities, which means that the classification is based on output The statistical system of the economic activities used in the European Community is the NACE 2 Rev. 2, which was introduced as a binding system by way of EC regulations. Just as ISIC, this system categorises the economic entities according to their top-selling products. The standard classification scheme of the EU is therefore also based on output. The economic entity (undertaking, establishment, specialised establishment section) is assigned to an economic activity on the basis of the area in which the operations of the entity are focused. Whilst NACE resembles ISIC in its structure, the European version is however more detailed in several areas and thus adapted to the context of the European Union. Whilst the classification on the highest level of the hierarchical structure is identical to the ISIC system, the NACE system includes an additional classification level, namely the subsection, which is not included in the ISIC system In the NACE system, the classification on the top two levels of the hierarchy is in alphabetical order, plus there is a numerical classification. For the producer price index of industrial products (domestic sales), the economic entities included in the universal set are those assigned to the NACE sections B (Mining and quarrying), C (Manufacturing), D (Electricity supply) and E (water supply) The classification of economic activities used in Germany (WZ 2008) is based on the European system, but includes an additional hierarchy level, namely the economic sub-class. The system serves to provide for standardised recording of economic activities of undertakings, establishments, and other statistical units in all official German statistics. Numerous business associations, the relevant competent authorities, and further institutions contributed significantly to developing this classification. The result is a hierarchically-structured classification of economic activities with 21 sections, 88 divisions, 272 groups, 615 classes and 839 subclasses, allowing for a statistical classification of all economic activities. In addition to the system itself, an annotated version and an alphabetical index with more than 33,000 terms is available as an aid in the application of WZ The following overview shows how the classification of the economic activities is structured. In addition to the type of identification for each hierarchy level, the number of categories on each level and an example taken from the classification of economic activities (WZ 2008) is shown. Table 3.2: Structure of the classification of economic activities (WZ 2008) Identification Hierarchy levels Example 1 letter 21 Economic sections C Manufacturing 2 digits 88 Economic divisions 24 Manufacture of basic metals 3 digits 272 Economic groups 24.2 Manufacture of tubes 4 digits 615 Economic classes Manufacture of steel tubes 5 digits 839 Economic subclasses Manufacture of precision steel tubes 1 ISIC: International Standard Industrial Classification of all Economic Activities 2 NACE: Nomenclature statistique des Activités économiques dans la Communauté Européenne

26 Chapter 3 Scope and classifications Page 8 of 11 as per: May Every economic entity is clearly assigned to an economic activity, even if it manufactures additional products that would require allocation to another economic activity. The economic focus of the entity is always critical in the classification. E.3 Classifications of goods 3.40 In contrast to the classifications of economic activities, in which an economic entity is assigned to a specific group as a whole, the classification of goods is characterised by equivalent products being summarized independently of the type of producer involved. In the classification of goods, various classification schemes exist in the international sphere, as well; the most important schemes on the UN level, in the area of the EU and of the Federal Republic of Germany, are shown in the following figure. Figure 3.3 Overview of the classifications of goods Goods UN EU Germany CPC CPA PRODCOM GP The Central Product Classification (CPC), which is binding on the UN level, covers goods and services and the structure of its hierarchy levels, and is in line with the international classification of economic activities, ISIC. By combining ISIC and CPC, an unmistakable identification of the products (via CPC) of a specific undertaking (via ISIC) is made possible The Classification of Products by Activity (CPA) is binding within the European Community. It was developed in conjunction with NACE and provides for classification of products on up to six levels of detail. As in the classification of economic activities, the CPA differs from the CPC on UN level in its higher level of detail, as the CPC does not provide sufficiently detailed classifications needed for the specific purposes of the EU The PRODCOM, the List of Products of the European Community, is also used on the European level. This is an annually-updated list of goods from mining and quarrying and manufacturing that provides the basis for production statistics in the European Union. This classification provides for a uniform survey on the production of goods within the EU. In its structure, PRODCOM resembles CPA, however, in addition to the 6-digit codes, which correspond to the CPA code, two additional digits provide information on the classification of an item within its CPA category. The first four digits are largely identical to the classes of the NACE Rev. 2.

27 Chapter 3 Scope and classifications Page 9 of 11 as per: May 2011 system. In implementing production statistics, the quantity and value of production are usually collected for the goods listed in the PRODCOM list Just as the WZ 2008 was developed in the classification of economic activities, a national products classification was also developed in the classification of products for the Federal Republic of Germany, based on CPA and PRODCOM. The allocation of products to specific groups is based on the Product Classification for Production Statistics 2009 (GP 2009). In particular, the level of detail exceeds that of CPA and PRODCOM On the top level, the classification of the GP 2009 complies with the subsections of the classification of economic activities. Each product is assigned a 9-digit GP 2009 code making it unmistakably attributable to one category of goods. The first two digits are comprised of the 2- digit GP code identifying the division of goods in which the product falls. The classification of the latter corresponds to the classification of the subsections of WZ The 2-digit GP codes listed in the following table are included in the calculation of the producer price index of industrial products (domestic sales). Table 3.3: Overview of the GP codes of the producer price index of industrial products (domestic sales) GP No. Group of goods 05 Mining of coal and lignite 06 Extraction of crude petroleum and natural gas 08 Quarrying of stone, sand and clay, other mining 09 Mining support service activities 10 Manufacture of food products 11 Manufacture of beverages 12 Manufacture of tobacco products 13 Manufacture of textiles 14 'Manufacture of wearing apparel 15 Manufacture of leather and related products 16 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials 17 Manufacture of paper and paper products 18 Printing and reproduction of recorded media 19 Manufacture of coke and refined petroleum products 20 Manufacture of chemicals and chemical products 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 22 Manufacture of rubber and plastic products 23 Manufacture of other non-metallic mineral products 24 Manufacture of basic metals 25 Manufacture of fabricated metal products, except machinery and equipment 26 Manufacture of computer, electronic and optical products 27 Manufacture of electrical equipment 28 'Manufacture of machinery and equipment n.e.c. 29 'Manufacture of motor vehicles, trailers and semi-trailers 30 Manufacture of other transport equipment 31 'Manufacture of furniture 32 Other manufacturing 35 Electricity, gas, steam and air conditioning supply 36 Water collection, treatment and supply Recovery of sorted materials

28 Chapter 3 Scope and classifications Page 10 of 11 as per: May Every 9-digit GP code identifies the type of product subordinated to a subcategory of goods, the 6-digit GP code. This code, in turn, is subordinated to the 5-digit GP code, i.e. the category of goods within a class of goods, the 4-digit GP code. The classes of goods are summarized to form groups of goods, the 3-digit GP codes, several of these form the 2-digit GP code, the division of goods. The following example illustrates this classification. Figure 3.4 Example of classification according to the Product Classification for production statistics (GP 2009) The type of good: Wine vinegar classifies in the subcategory of goods: Cooking vinegar in the category of goods: Cooking vinegar; dressings, composite seasonings; mustard flour and mustard in the class of goods: Condiments and seasonings in the group of goods: Manufacture of other food products 108 in the division of goods Manufacture of food products and beverages This classification also ensures that each product is clearly attributable to exactly one 9-digit GP code. As in all classifications, it is possible to form aggregates of various 9-digit GP codes. As a result, for instance, 4-digit GP codes and 2-digit GP codes are formed which cover all products of the class or division of goods. Starting from the level of the 5-digit GP codes, there is an obvious correspondence with the 5-digit WZ codes. This is achieved by assigning the 9-digit GP codes in such a way that the types of goods concerned are manufactured mainly by undertakings from the same 5-digit WZ code. That means that production within an economic activity is dominated by the products that have the same code in the GP as the corresponding economic activity. As a consequence, there is a high level of correspondence between the classification structures of GP and WZ, as is expressed in the identical coding of the first five digits in both classifications. The equivalent identification of the category of goods in GP 2009 and economic subclass in WZ 2008 illustrate this, as is shown by the following examples in Table 3.4. E.4 Particularities 3.48 The two classifications used to ascertain the producer price index of industrial products (domestic sales) basically differ in their type of classification of the universal set. The classification of goods takes priority in the calculation of the producer price index; results are determined with regard to products. These results of the index calculations are then transferred analogously to the results for the economic activity.

29 Chapter 3 Scope and classifications Page 11 of 11 as per: May 2011 Table 3.4: Examples from the juxtaposition of the classification of economic activities vs. the classification of goods WZ 2003 (Economic activities) Manufacture of bread and rolls (without manufacture of fresh and preserved pastry products) Manufacture of veneer sheets, manufacture of plywood, laminboard, particle board, fibre board and other panels and boards 5-digit code Manufacture of optical instruments Manufacture of motorcycles (except parts thereof) GP GP 2002 (Product classification) Manufacture of bread and rolls (without preserved pastry products) Manufacture of veneer sheets, plywood, laminboard and fibreboard Manufacture of spectacle lenses, contact lenses, spectacle frames, and frames fitted with lenses, whether or not lenses are optically worked Manufacture of motorcycles, except parts thereof 3.49 As explained above, there is close correspondence between the 5-digit WZ codes and the 5-digit GP codes. As the economic activities are represented by the main manufactured products, the turnover generated by by-products is also attributed to the main economic activity. These by-products are therefore contained in the weight of the economic activity but not covered by a price representative. The classification of an economic entity in an economic activity is only relevant for the sampling frame; the price representatives are selected with the aid of the classifications of goods. The price development of by-products is portrayed, but it will fall into other categories when making the transfer from the system of the classification of goods to the classification of economic activities. By ascertaining the index on the basis of the classification of goods and transferring the results to the economic activities, the results for the economic activities will eventually include the products contained correspondingly in the classification of goods. The price development of other products that are also manufactured by the relevant economic activity as by-products is not portrayed. Likewise, by-products of other economic activities assigned in the classification of goods are portrayed by the price index, even if they are produced within a different economic activity Despite these differences between economic activities and goods, the results of the calculation of the price index are transferred to the economic activities. The indices ascertained are used analogously in the producer price statistics of the Federal Republic of Germany since the results correspond closely to another.

30 Chapter 4 - Weighting Page 1 of 11 as per: May Weighting A. Introduction 1 B. Data sources 3 C. Calculation method 6 D. Updating and comparability 14 A. Introduction 4.1 The index of producer prices of industrial products (domestic sales) is calculated by aggregating individual elementary indices to form total indices at different aggregation levels. In this compilation, the price changes of individual goods are included in the calculation with different weights depending on their significance. These weights reflect the share of the corresponding product group in the domestic sales of all goods observed. The total of all weights of the individual goods results in the value The weighting in the index calculation ensures that product groups which contribute a large share to total domestic sales are allotted a greater influence on the total index. An increased price with these goods types leads through the weight that is allocated to greater changes in the total index than price changes in products with lesser significance in terms of their sales. 4.3 The compilation of the individual price series to form total indices takes place in two steps. Measurements are used for the calculation which for the individual price reports (price representatives) depict the price development in the period under report compared to the base period in question. These measurements are compiled in the first step to form elementary indices. To this end, all measurements of an item are input in the basket unweighted. This lowest aggregation level is as a rule the GP 9-digit code. 4.4 The measurement for price series i in period t is calculated according to the following formula. pit [Formula 4.1] MZ it = * 100 p i0 With p it : price for price representative i in period t p i0 : price for price representative i in period The compilation of the individual measurements of a basket item j to form an elementary index EI for period t is carried out according to the following formula. [Formula 4.2] EI jt = 1 n j i j p p it i0 1 *100 = n With n j : no. of price series i of the elementary index j p it : price for price representative i in period t j i j MZ it

31 Chapter 4 - Weighting Page 2 of 11 as per: May 2011 p i0 : price for price representative i in period 0 MZ it : measurement of price representative i in period t 4.6 In a second step, the elementary indices are compiled to form aggregates. The weighting of each individual elementary index is decisive here; it determines the share with which the represented goods type is input to the total index. The index calculation is carried out with the Laspeyres formula, which uses as the foundation for the value weights w of product i the sub-division of the sales values from the base year t=0. According to Laspeyres, price index I of period t is generally calculated according to the following formula: p * q p p * q = it i0 it i0 i0 [Formula 4.3] I L = * pi0 * qi0 pi0 pi0 * qi0 it = * wi 0 pi0 With p it : price for price representative i in period t p i0 : price for price representative i in period 0 q i0 : quantity of product i sold in period 0 w i0 : share of sales of product i in the total sales of all goods represented 4.7 Since frequently no quantitative information q i on the products is available in base period t=0, the basic formula is converted such that the weighting w i0 can be used directly. This hence expresses the share with which the price change of the price representative i (p it /p i0 ) is input to the total index. It is the share of goods type i among total domestic sales of the universal set observed, in other words the value weight of the goods type in the base year. 4.8 If the general formula of the index calculation according to Laspeyres is combined with the calculation of the elementary indices, one obtains the following formula to calculate the price index in period t. p [Formula 4.4] pi0 * qi0 1 pit i j PI t = *100* = EI jt * w j0 n p p * q j j i j i0 i Ν i0 io j With n j : no. of price series i of basket item j p it : price for price representative i in period t p i0 : price for price representative i in period 0 N : universal set q i0 : quantity of product i sold in period 0 EI jt : elementary index of basket item j in period t w j0 : sales share of the goods of elementary index j in total sales of all goods represented 4.9 The distribution of the weights and the attribution to the individual basket items takes place in several steps, the calculation taking place in a top-down procedure. This means

32 Chapter 4 - Weighting Page 3 of 11 as per: May 2011 that the total domestic sales are successively spread over lower aggregation levels. The result is a weighting scheme which contains weights for different depiction levels. The data sources used here are described in greater detail in Section B; Section C explains the individual steps in the calculation of the weighting scheme. Then, there will be some discussion of special characteristics in adjustments and of comparability over longer periods. B. Data sources B.1 Sales statistics 4.10 Various data sources are used to derive the weighting scheme. The focus is formed by sales and production statistics of the Federal Statistical Office. These are supplemented by further data sources As detailed sales statistics as possible are needed for Sections B (Mining and quarrying), C (Manufacturing), D (Energy supply) and E (water supply) of the Classification of economic activities (WZ 2008), which in institutional terms form the universal set of producer price statistics The monthly report for establishments of manufacturing, as well as of mining and quarrying, form the basis for Sections B and C. Results of this are published in Fachserie 4, Reihe Beschäftigung, Umsatz und Energieversorgung der Betriebe des verarbeitenden Gewerbes sowie des Bergbaus und der Gewinnung von Steinen und Erden (Employment, sales and energy supply of establishments of manufacturing as well as of mining and quarrying) 1. In addition to the number of employees, this report also lists sales and incoming orders, as well as the paid remuneration and hours worked of the establishments and specialised establishment sections. The sales are listed separately for domestic and foreign sales, the level of detail reaching as far as the 4-digit WZ code. Domestic sales sub-divided by specialised establishment sections are relevant to the derivation of the weighting scheme of the producer price index All establishments of the report group are obliged to provide information for the data survey for the monthly report. These include all establishments of Sections B and C in which at least 50 persons are employed. Also included are establishments of these Sections with at least 50 persons employed who belong to undertakings whose economic focus lies outside the production industries The necessary data are collected locally by the Land Statistical Offices, which are also responsible for the monthly preparation of the Land results. The task of the Federal Statistical Office, by contrast, is the methodical preparation and refining of these statistics, as well as the compilation of the Länder results to form and publish a national result When calculating the weights for the producer price statistics, domestic sales are used by specialised establishment sections. To this end, the results of the specialised establishment sections of combined establishments, i.e. establishments with specialised establishment sections in several economic classes, are sub-divided among the various WZ 2008 classes to which the individual establishment sections are to be attributed according to their 1 The Fachserie and the quality report can be found on the homepage of the Federal Statistical Office at

33 Chapter 4 - Weighting Page 4 of 11 as per: May 2011 production. The sales are collected from own production, as well as from commercial goods and other non-industrial / non-handicraft activities, in each case not including sales tax and including any consumption taxes. If the purchasers are in Germany, these are therefore domestic sales In addition to the data which are published on a monthly basis, the aggregated annual data are published on expiry of one year. The monthly evaluations of the national results are available at the latest 50 days after the end of the month under report; the annual data are published at the end of the first half of the following year. The domestic sales listed here by 4- digit WZ codes are used as a data source for the calculation of the approximate structure of the weighting scheme of the producer price index for the WZ 4-digit code of Sections B and C For the undertakings of Section D (Energy supply) and E (water supply), the annual investment survey and cost structure survey provide detailed information in undertakings of energy and water supply, including on domestic sales by specialised establishment sections. The results are published in Fachserie 4, Reihe 6.1 Beschäftigung, Umsatz, Investitionen und Kostenstruktur der Unternehmen in der Energie- und Wasserversorgung (Employment, sales, investment and cost structure of undertakings in energy and water supply) 2, the data being subdivided by 3-digit WZ codes Undertakings whose activities focus on electricity, gas, steam and hot water supply, as well as undertakings of collection, purification and distribution of water with an annual water output of 200,000 m 3 and more, are obliged to provide information on this primary survey. The survey is implemented locally by the Land Statistical Offices; the data are processed centrally by the Federal Statistical Office. The individual undertakings obliged to report use the data of the annual statement, which is why the survey is not implemented until the year following the year under report The sales statistics of economic activity D and E are collected on an annual basis and because of the complex nature of the questions are published with a time delay of roughly two years. B.2 Production statistics 4.20 The production surveys, which are published on a quarterly basis, provide the necessary information for the more detailed sub-division of domestic sales by economic activities among individual goods types. These are published on a quarterly basis, and as an annual publication in Fachserie 4, Reihe 3.1 Produktion im produzierenden Gewerbe (Production in the production industries) 3 for Sections 05 to In general terms, the production surveys cover volumes and sales values of production, as well as of repair, assembly and processing work. The Product Classification for Production Statistics (GP 2009) is used as a basis for the survey and the structuring of the data. The information on production meant for sales by goods types is vital in calculating the weighting scheme for producer price statistics. The value of production meant for sales is based on market prices earned or earnable ex-works in the period under report. The value covers both domestic and foreign sales. The cost of packaging is also included, even if it is separately invoiced. Not 2 The Fachserie and the quality report can be found on the homepage of the Federal Statistical Office at 3 Ebenda.

34 Chapter 4 - Weighting Page 5 of 11 as per: May 2011 included, by contrast, are invoiced sales and consumption taxes and parafiscal charges, as well as separately-invoiced freight costs and discounts The report group of the quarterly production survey covers establishments of mining and quarrying, as well as of manufacturing with in general 20 and more employees. It is immaterial here from which industries the undertakings originate. With some economic activities, the cut-off limit is at ten and more employees. The undertakings are obliged to provide information. The data are published with a sub-division down to the 9-digit GP code, as long as the confidentiality of the individual data can be guaranteed. The Federal Statistical Office also have at their disposal the data which are to be kept confidential externally for use as a data source to calculate the weights of the individual 9-digit GP codes The production statistics are collected and processed locally by the Land Statistical Offices; the latter provide data aggregated by 9-digit GP codes to the Federal Office. The annual results which are used as a data source for the calculation of the index of producer prices of industrial products (domestic sales) are published within five months of the end of the year under report. B.3 Other sources 4.24 In addition to the above publications of the Federal Statistical Office on sales figures and production values, additional external sources are used to provide data in calculating the weighting scheme. Gaps in the information are closed by secondary statistics, targeted surveys of large undertakings, associations and institutes, as well as by estimations To adjust the delimitation differences between sales and production values, the consumption taxes are added to the production values of the production statistics. The source for this is the consumer tax statistics of the Federal Statistical Office Some users, in particular the trade associations, need price indices in a more detailed sub-division than the 9-digit GP codes contained in the production statistics. The information needed for this for the weighting is as a rule provided by the associations themselves. The source of this is in most cases the associations internal statistics, the survey programme of which makes it possible to provide detailed information Such detailed sub-divisions are carried out within the following GP areas. Table 4.1: Overview of secondary sources in the calculation of the weighting scheme GP Additional sub-division for Source 05 Steam coal / coking coal Statistik der Kohlenwirtschaft e.v. 16 Coniferous wood / non-coniferous sawnwood Verband der deutschen Säge- und Holzindustrie e.v. 19 Mineral oil products by purchaser groups Mineralölwirtschaftsverband e.v. 21 Medicines IMS HEALTH GmbH & Co. OHG 24 Rolled steel Walzstahlvereinigung 4.28 The Federal Statistical Office has no detailed data in the sub-division by goods types in the area of energy and water supply. No evaluations are made on this. For the price observation in the context of producer price statistics, representative sales events are formed which are distinguished as to groups of purchasers and consumption volumes. Prices are then

35 Chapter 4 - Weighting Page 6 of 11 as per: May 2011 collected for these specific sales events which are input into the further index calculation. The collation and weighting for this takes place with the support of the Bundesverbandes der Energie- und Wasserwirtschaft e. V. (BDEW). C. Calculation method C.1 Approximate weights up to WZ The sub-division of the weights and the attribution to the individual goods groups takes place in two stages. The approximate weights for the individual 4-digit WZ codes are ascertained in a first stage; in the fine sub-division, which takes place in the second step, these weights are attributed to the individual 9-digit GP codes. The attribution is hence implemented from top to bottom, at the end of the calculation of the weights, the individual goods groups of the 9-digit GP codes are found The sales statistics described in section B.1 are used to calculate the approximate weighting. These show domestic sales up to the 4-digit WZ code, structured by economic activities The attribution of the individual approximate weights to the 4-digit WZ codes depends on their share of total domestic sales in the reference period. The current reference period is calendar year The domestic sales of some economic activities are removed from the total at the beginning of the calculations. This includes economic activities (Processing of nuclear fuel), (Building and repairing of ships) and (Manufacture of aircraft and spacecraft). The main reason for this is that the products that are typical of these economic activities cannot be observed in terms of price dynamics. As a rule, these are tailor-made products, small series and products with a long production cycle. Products that are comparable over time are extremely difficult to define. The price development of the products in question can also not be corepresented by other products, so that transferring the weights to other economic activities does not appear to make sense. Foregoing the above economic activities is also in compliance with the EU short-term statistics regulation Once the above economic activities have been removed, the weights are attributed to the 4-digit WZ codes based on the percentage of their sales share of domestic total sales. Coverage of the domestic sales of almost 98 % was achieved with the most recent new calculation of the weights for 2005 by including the 4-digit WZ codes. The attribution of the weights for 2005 to the individual economic activities classified by 4-digit WZ codes is listed in the Annex in the Fachserie (Annex 6). C.2 Sub-division to GP-9 level 4.34 After the approximate weights have been awarded at the 4-digit level, the subdivision takes place in a second step up to 9-digit GP code level. To this end, the production surveys of the Federal Statistical Office and various secondary sources are evaluated Various adjustments must be made to the original data of the production statistics in order to approach the original values to the domestic sales characteristic used for weighting.

36 Chapter 4 - Weighting Page 7 of 11 as per: May This relates, firstly, to the sub-division into domestic and foreign sales. The production statistics cover the complete sales production, regardless of whether the products are planned for the domestic or the foreign market. The index of producer prices however relates only to domestic sales. When calculating the weights for the individual 9-digit GP codes, it is presumed that the spread of the production values of the 4-digit code among the individual goods types has a similar structure both for products which are sold in Germany and for products sold abroad. Since the production statistics are to facilitate a percentage attribution of the approximate weights to the lower levels, the absolute volume is not decisive, so that the spread can take place using the total production values Also the production statistics include neither consumption taxes nor parafiscal charges. These should be added prior to the further sub-division of the approximate weights to the production values of the goods groups in question in order to correctly attribute the weights of the 4-digit codes to the individual 9-digit codes. In particular, consumption taxes for alcoholic beverages, tobacco goods and mineral oil products, and parafiscal charges for mineral oil products such as the petroleum stocking levy (Erdölbevorratungsbeitrag EBV), are considered in the price index and must therefore be included in the calculation The table below shows the calculation of the corrected production value for cigarettes (GP ). The amount is calculated by adding the consumption tax to the production value from the production statistics. The tobacco tax is volume-dependent, so that consumption from the base year is multiplied by the tax rate and then added to the production value of the corresponding 9-digit GP code. Table 4.2: Calculation of the consumption tax and of the corrected production value (in each case in Euro 1,000) for cigarettes (in 2005) Goods class 1200: Manufacture of tobacco products, Cigarettes containing tobacco Production value from the Tobacco tax Corrected production value production statistics 3,607,195,872 12,514,967 3,619,710, The sub-division of the approximate weights takes place as a percentage of the production values of the same 4-digit code. As a result, one receives a sub-division of domestic sales by 9-digit GP codes. The original calculation of the weighting schemes in principle accommodates all 9-digit GP codes of the production statistics (with the exception of those codes corresponding to the economic activities that have been removed), regardless of whether the products are included in the goods sample (basket) or not. Using this attribution, 5, digit GP codes are used in the weighting scheme on the basis of the year After the determination of the basket, the weighting shares of the excluded 9-digit GP codes are attributed to the basket items which have been included. The method is described in Chapter 5 Samples. The weights w i0 are kept constant in the calculation of the index of producer prices of industrial products (domestic sales) for a base period until the next rebasing. They serve as fixed multipliers for the individual elementary indices of the goods types. By adding up the individual weighted elementary indices for basket items j= 1,, n the index of producer prices of industrial products (domestic sales) in period t is calculated according to the following formula.

37 Chapter 4 - Weighting Page 8 of 11 as per: May 2011 [Formula 4.5] PI t = EI jt * w j0 j With EI jt : elementary index of basket item j in period t w j0 : sales share of the elementary index j in the total sales of all represented goods 4.41 The following table shows by way of example how the individual fine weights are subdivided in dependence on the production values (PW). This sub-division of the approximate weights takes place separately for each economic class (4-digit WZ code). The sales values of the 4-digit WZ code are the starting point, these being distributed in proportion to the production values among the individual 9-digit GP codes. The sales comparison column forms the basis for the calculation of the individual weights of the 9-digit GP codes. The listed data relate to values of Table 4.3: Distribution of the fine weights of the 4-digit WZ codes among the goods types Sales statistics Amounts in 1,000 Euro Economic Text Sales 2005 activity 1081 Sugar 2,322,063 Production statistics GP Goods type PW 2005 Share PW Sales comparison 158, , Raw cane or beet sugar, in solid form, not containing added flavouring White sugar from cane or beet sugar, in solid form, not containing added flavouring Other refined cane or beet sugar and chemically pure sucrose Raw cane or beet sugar, containing added flavouring or colouring matter 2,431, ,002,964 22, ,657 25, , Molasses and other waste of cane sugar manufacture 3, , Molasses and other waste of beet sugar manufacture 50, , Beet-pulp, bagasse and the like 126, ,054 Total 2,819, ,322, In addition to the information from the production statistics, additional information is processed from associations and other external sources for the calculation of the fine weighting. An overview of the sections concerned was provided in Table 4.1. Particularly in economic activity E (Energy and water supply), the data available in the Federal Statistical Office are not sufficient to carry out detailed weighting. The basket items are contained below which were defined together with the BDEW for the base year 2005.

38 Chapter 4 - Weighting Page 9 of 11 as per: May 2011 Table 4.4: Sales events of economic activity E (Energy and water supply) GP Text Weighting share per thousand Electricity 122,13 Electricity, supplied to households - amount supplied per year 1,800 kwh - amount supplied per year 3,500 kwh - amount supplied per year 13,000 kwh Electricity, supplied to industrial plant Electricity, supplied to special contract customers - in low voltage - in high voltage, amount supplied per year 625,000 kwh - in high voltage, amount supplied per year 4,000,000 kwh Electricity to resellers Services for electricity supply 26,69 14,20 8,62 3,87 6,10 29,81 9,56 7,38 12,87 34,03 23,35 Natural gas (distribution) 70,29 Natural gas, supplied to households Natural gas, supplied to trade and industry - amount supplied per year 58,150 kwh - amount supplied per year 116,300 kwh Natural gas, supplied to industry - amount supplied per year 1,163 MWh - amount supplied per year 11,630 MWh - amount supplied per year 116,300 MWh - amount supplied per year over 500,000 MWh Natural gas, supplied to power plants Natural gas, supplied to local gas utilities Natural gas, supplied to re-sellers 13,44 4,42 2,21 2,21 11,58 3,32 3,47 4,05 1,74 2,40 20,29 18,16 Steam and hot water supply services 7, Supply to a residential building with several families Supply to a non-residential building Water and services of the collection, purification and distribution of water Water supplied to households 41 Water supplied to industry - 5,000 m 3 per month - 50,000 m 3 per month Water supplied to water utilities 3,96 3,95 14,23 8,17 2,13 1,11 1,02 3,93 C.3 Particularities 4.43 In the calculation of the weighting scheme, the sales values of the 4-digit WZ codes are exclusively underpinned with products corresponding to the main production, i.e. of the same 4-digit GP code. Sales are however also frequently generated with by-products within this 4-digit WZ code. The results for economic activities and for goods classes are deemed equal in the index calculation up to the respective 4-digit code. In the final analysis, this means that price indices are exact by goods types in each case, but that price indices by economic activities only reflect the price development of the main production, and not that of the total sales. These

39 Chapter 4 - Weighting Page 10 of 11 as per: May 2011 inaccuracies in the weighting scheme and in the index calculation however appear to be acceptable. The source for this is the supply table from the input-output account In most cases, this distinction between attribution/ by economic activities and by product groups leads to deviations in coverage of less than 10%. What is more, the data of the supply table were calculated on the basis of undertakings results. Sales values of specialised establishment sections are however used when deriving the weighting scheme for the producer price index which are characterised by much greater homogeneity in the production ranges. The problem of non-consideration of by-production is hence also much less than shown by the above table. D. Updating and comparability D.1 Updating 4.45 The basis for the calculation of the individual weights of the weighting scheme in the reference period is formed by the shares of the 4-digit codes among total sales for the formation of the approximate weights and the production values of the 9-digit codes for the fine weights. Since the significance of individual economic activities, products and product groups may change over time, checks and adjustments to the weights are necessary at regular intervals In order to account for structural shifts and changes in the markets, the weighting scheme is re-calculated every five years in Germany; the years ending in 0 and 5 are used as a base year as a rule. The following list provides an overview of the base years since Fig 4.1 Base years since 1950 Base year: A deviation from this rule makes sense if the originally-planned base year is unsuited because of special influences since special situations have considerably distorted the normal economic structure. Examples of this are as follows. Base year 1976 instead of 1975: Special influences because of the oil crisis Base year 1991 instead of 1990: Special influences because of German reunification 4.48 The current base year is Sales and production statistics of the respective base years are used to derive new weights. In the same way, the samples are fundamentally revised on rebasing. The precise method used for this is described in the next chapter, Chapter 5 Samples. When calculating the price indices, the annual average of the base period after rebasing forms the new base index value of 100. A description of the method used in the index calculation and in rebasing can be found in Chapter 9 Index calculation If qualitative changes can be observed within a product group of the weighting 4 Fachserie 18 Volkswirtschaftliche Gesamtrechnungen des Bundes (National Accounts of the Federation), Reihe 2 Input-Output-Rechnung (Input-output accounts).

40 Chapter 4 - Weighting Page 11 of 11 as per: May 2011 scheme, these can also be integrated regardless of rebasing and of a new calculation of the weighting scheme. Information is provided in Chapter 7 Quality changes on possible forms of adjustment which this makes necessary. Consideration of changed sales shares and production values is not possible within the ongoing base. Outside the rebasing and calculation of new weights, new products are only included if these constitute new product specifications within the included basket items (9-digit GP code). The precise method adopted and the possibilities in replacing products and new goods are described in Chapter 8 Product replacement and inclusion of new goods. D.2 Comparability 4.50 The weighting is a major element in the calculation of the producer price index since it determines the influence of individual price changes on the total index. Indices are formed from the price reports, in other words from the basic data, in the shape of individual measurements. In order to draft on this basis a total index, the individual indices for the various products must be weighted; depending on their significance, they are input into the producer price index with variously-sized shares. Since the share of individual products in total sales changes over the periods, adjustments of the weighting scheme are also necessary. These changes depict shifts in the market structures This reduces the informational value with long-term comparisons over different base periods; comparisons are only possible to a restricted degree. Individual aggregates of different base years consist of various product groups; the weights of the 9-digit GP codes are changed. Price and structural changes are mixed if an index comparison occurs over several base periods, since the composition of the 9-digit codes and their weights in the total weighting scheme change with each rebasing. Also the sample of the reporting firms is re-compiled with each new calculation of the weights, which is why a comparison should always be taken with a grain of salt In addition to the problem arising as to the comparability over the periods because of different weights of the 9-digit GP code, it should also be considered that the classification schemes on which the sub-division of the products to form goods groups and undertakings to form economic activities is based are subject to a variety of adjustments. These classifications are updated at regular intervals and the current versions of the classification of the economic activities and of the Product Classification for Production Statistics are integrated in the framework of rebasings. This conversion makes it possible for the grouping of individual goods types to take place in a different way than was previously the case. Direct comparisons of the price indices become less authoritative since they can each relate to different products For instance, the transition of the Product Classification for Production Statistics from version GP 2002 to GP 2009 took place in the conversion to the base 2005 = 100. Here, the goods classifications in the various Member States of the European Union were harmonised Europe-wide. This led to considerable changes to the classification in Germany. As a result, it was impossible in many cases to calculate comparable results acc. to GP 2002 and GP In addition to the comparability over time of various base periods and classifications, geographical comparability is a further point to be taken into account. The producer price statistics were drawn up for the former federal territory until Since the price development of domestic sales is collected, the geographical borders have been extended by German reunification; the price development has been calculated for the entire federal territory since 1991.

41 Chapter 5 - Samples Page 1 of 11 as per: May Samples A. Introduction 1 B. Data sources 3 C. Selection of the basket of goods 3 D. Selection of the undertakings 7 E. Selection of the price representatives 9 F. Dealing with changes 10 A. Introduction 5.1 The index of producer prices of industrial products (domestic sales) measures on a representative basis the average development of the prices for the products manufactured and sold in Germany by undertakings in mining, manufacturing, and the energy and water industries. The universal set is comprised of all sales events in the respective period under report carried out by undertakings headquartered in Germany towards domestic customers. Figure 5.1 Universal set of producer price statistics 5.2 Statistical recording of the entirety of these sales events is not feasible; the exact composition of the universal set is unknown. For this reason, the application of traditional sampling procedures (random or stratified random sample) is not possible. Consequently, a

42 Chapter 5 - Samples Page 2 of 11 as per: May 2011 combination of targeted selection and cut-off procedures is applied in German producer price statistics, as in other price statistics. This method consists of three stages. 5.3 The first step involves the selection of the goods types with relatively high significance in terms of sales. This is based on the weights of the weighting scheme that have been attributed to the individual types of goods. The entirety of products selected on the basis of the weighting forms the basket of goods. The second step then involves the selection of undertakings or establishments which produce and sell the goods types represented in the basket of goods. The entirety of the undertakings and establishments thus selected forms the sample of reporting units. In the third step, the specific goods variants, i.e. the typical sales events, are then determined by the selected reporting units. These sales events form the basis for the monthly price observation and are referred to as price representatives. Figure 5.2 Selection steps in taking the sample Universal set All products All producers All sales events Sample of goods (basket of goods) Selection of products All producers All sales events Sample of reporting units Selection of producers All sales events Sample of price representatives Selection of sales events 5.4 A different type of information is needed for each step. The various data sources used for these purposes are discussed in section B. Then the individual steps in the formation of the sample are described, firstly the selection of the basket of goods, then the decision for the individual reporting units, and finally the exact procedure in defining the price representatives. The last section of the chapter deals with changes and adjustments. 5.5 The main goal in forming the individual samples is to attain as high a degree of representativeness as possible. In addition, care should be taken that the effort involved for the reporting firms is kept as low as possible and that the reports are used efficiently for the calculation of the index.

43 Chapter 5 - Samples Page 3 of 11 as per: May 2011 B. Data sources 5.6 The procedure of ascertaining the individual price representatives is comprised of several stages. First, the goods are selected for the basket of goods, next, the sample of reporting units is formed, and in a final step, the individual price representatives are determined. 5.7 The weighting scheme, the determination of which was described in Chapter 4 Weighting, constitutes the information basis for the selection of the individual goods represented in the basket of goods. With the aid of the weights for the individual 9-digit GP codes and of the corresponding aggregates, it is decided which groups of goods become part of the basket of goods, thus forming the basis for the price survey. Consequently, the production statistics described in Chapter 4 Section B (Fachserie 4, Reihe 3.1 Produktion im Produzierenden Gewerbe (Production in the Production Industries) forms the essential basis for the compilation of the basket of goods. In addition, the production statistics serve as a data source for the formation of the sample of reporting units. To this end, an evaluation is carried out of the individual datasets of the production statistics which contain for each 9-digit GP code the contact details of the individual producers and the corresponding production values. 5.8 For undertakings in the sectors of energy and water supply, the Federal Statistical Office does not have the data at its disposal in this detailed form. To obtain more detailed data for the selection of the sample of reporting units in this regard, information provided by the respective trade association is evaluated (BDEW). The sub-division of the market in these sectors is clearly structured. In the sectors of electricity production and distribution, gas distribution and water supply and distribution, close collaboration with the associations enables a breakdown of the weighting of the individual basket items to the reporting units to be included. C. Selection of the basket of goods C.1 Selection of the 9-digit GP codes 5.9 When the weighting scheme is derived, each 9-digit GP code is assigned a weight that corresponds to its share in total sales. The result is a list of all 9-digit GP codes, their sales values and their share in the total sales. The types of goods to be included in the basket of goods now have to be selected from this list. The basket of goods hence constitutes the selection of the goods whose price development is to be observed representatively for all domestic products. Consequently, price surveys are conducted and elementary indices are calculated only for goods represented in a basket of goods The table below shows an excerpt from the weighting scheme with the concomitant details on domestic sales from the year 2005 and the shares in the total domestic sales which correspond to the weighting share of the respective 9-digit code. The right column shows the types of goods represented in the basket of goods of 2000.

44 Chapter 5 - Samples Page 4 of 11 as per: May 2011 Table 5.1: Example of a product sample Sales statistics Amounts in 1,000 Euros, weighting share per thousand WZ Text Sales 2005 Weighting share 1081 Sugar 2,322, Production statistics GP Goods type Sales Weighting comparison share 130, Raw cane or beet sugar, in solid form, not containing added flavouring White sugar from cane or beet sugar, in solid form, not containing added flavouring Other refined cane or beet sugar and chemically pure sucrose Raw cane or beet sugar, containing added flavouring or colouring matter 2,002, X 18, , Molasses and other waste of cane sugar manufacture 3, Molasses and other waste of beet sugar manufacture 41, Beet-pulp, bagasse and the like 104, X Total 2,322, Basket of goods From these data, the products with a high sales significance are selected for each 4- digit WZ code. This significance is reflected in the weighting share of the individual 9-digit GP code. To make the selection, all 9-digit GP codes are sorted in descending order by their weighting shares and are included in the sample until a cumulated minimum of 60 % of the sales per 4-digit code is represented. In certain cases, several 9-digit codes are combined to form one basket item. This is frequently the case where only minimal weights were determined for the individual 9-digit codes. None of the 9-digit GP codes would have a high sales significance of its own, but the share in the total sales is significant as a combined basket item. The result of the selection procedure is a list of basket items which contain individual 9-digit GP codes or combinations of 9-digit GP codes This list is coordinated with the major data users, in particular with the specialist trade associations. This allows taking into consideration additional wishes of various groups of users. Some associations, for instance, require information on the price development in specific product groups, although the sales values of the goods types would actually be too low to justify inclusion in the basket of goods. It is conceivable with some groups of goods that a more detailed classification below the level of 9-digit GP codes is desired. The special wishes of the users of the statistics are considered as far as possible in compiling the basket of goods At present, the ascertainment of the index of producer prices of industrial products (domestic sales) is based on the basket of goods from the year This basket is comprised of approximately 1,800 9-digit GP codes, which were selected from the total of approx. 6,400 items of the GP classification system. The groups of goods were combined to form 1,272 basket items. When adding up the sales of the 9-digit codes of the basket of goods, the degree of coverage is approx. 75 % of domestic sales.

45 Chapter 5 - Samples Page 5 of 11 as per: May 2011 C.2 Consequences for the weighting scheme 5.14 At the time the basket of goods is compiled, the decision is made as to which 9-digit GP codes are included in the price survey. The overall coverage of domestic sales attained by the 9-digit codes in the current basket of goods is 75%. This means that some of the products are not represented directly by a basket item. Consequently, no own prices are collected for specific products, and the price development of the goods types contained in the basket of goods is representative of these products Once the sample of goods has been finally determined, the weights of the 9-digit codes not contained in the basket of goods are assigned to the group of goods whose price development represents the non-selected products. By these means, the basket items cover the entire domestic sales again If, for instance, only a single goods type from a given 4-digit code is an element of the basket of goods, the price development of this 9-digit code is representative of the entire class of goods. In assigning the weight, the 9-digit code is given the entire weight of the 4-digit code, since the total of the weights of the sub-indices must always be equal to the weight of the index on the next higher level. Where several 9-digit codes are contained in the sample, the weights of the excluded 9-digit codes are distributed, their assignment to the basket items being based primarily on the GP code or otherwise proportionally to the weights of the basket items The example in the table below shows, for the goods class Sugar, how the weights of the 9-digit codes which were not included in the basket of goods were distributed proportionally to the 9-digit codes of the same class of goods which were included in the basket of goods. In the example, the three 9-digit codes with the highest weighting share in the overall sales are included in the basket of goods. In the proportional distribution of the weights of the other 9-digit codes, the major part is assigned to a single basket item; the item with the lowest sales volume is not assigned a higher weight. Table 5.2: Proportional assignment of the weights to the basket items of the 4-digit code (example) Sales statistics Amounts in 1000 Euro, weighting share per thousand WZ Text Sales 2005 Weighting share 1081 Sugar Production statistics GP Goods type Weighting Basket of goods Weight share X Raw cane or beet sugar, in solid form, not containing added flavouring White sugar from cane or beet sugar, in solid form, not containing added flavouring Other refined cane or beet sugar and chemically pure sucrose Raw cane or beet sugar, containing added flavouring or colouring matter 2.20 X Molasses and other waste of cane sugar manufacture Molasses and other waste of beet sugar manufacture Beet-pulp, bagasse and the like 0.12 X 0.12 Total in

46 Chapter 5 - Samples Page 6 of 11 as per: May Hence, once the basket of goods has been compiled, a revision of the fine weighting is carried out. The distribution of the non-considered 9-digit GP codes among the basket items results in new per-thousand weights per basket item. It is then investigated which basket items or aggregates of the weighting scheme must be kept confidential. This is the case when the weight or price indices could provide indications as to the sales or price development in individual undertakings The following table is an excerpt from the final weighting scheme 2000, subdivided down to the basket items for goods classes Bread; manufacture of fresh pastry goods and cakes and Sugar. The weight of the 4-digit code was subdivided into two 9- digit GP codes. The goods type Fresh bread and rolls is furthermore specially characterised by usage of a more detailed classification than prescribed by the goods classification. This was carried out at the request of an association which at the same time supplied the information on this more detailed classification. The 4-digit code is also represented in the weighting scheme by two 9-digit GP codes. Table 5.3: Excerpt from the weighting scheme 2005 Index of producer prices of industrial products (domestic sales) Weighting scheme 2005 = 100 GP no. Product Weighting share in the overall index per thousand Products of manufacturing 770,73 10 Food products and beverages 92, Bakery and farinaceous products 14, Bread; manufacture of fresh pastry goods and cakes 11, Bread; manufacture of fresh pastry goods and cakes 11, Fresh bread and rolls and similar products, without honey, eggs, cheese, or fruit 7, Fresh bread and rolls 7,34 White bread (without bread for toasting) 0,51 Bread for toasting 0,54 Rye and mixed wheat and rye bread (without whole-grain or wholemeal bread) 1,66 Whole-grain and wholemeal bread 0,97 Rolls 3, Fine bread, cake and pastries (without long-life products) 3, Fine bread, cake and pastries (without long-life products), sweetened also 3,7 deep-frozen 1072 Rusks and biscuits; manufacture of preserved pastry goods and cakes 3, Macaroni, noodles, couscous and similar farinaceous products 0, Other food products 19, Sugar 2, Raw and refined sugar 2, Refined cane or beet sugar and chemically pure saccharose, solid, without 2,55 flavourings or colourings Sugar 2, Cocoa, chocolate and sugar confectionery 6, Tea and coffee 3, Condiments and seasonings 2, Prepared meals and dishes 0,63

47 Chapter 5 - Samples Page 7 of 11 as per: May 2011 D. Selection of the undertakings 5.20 Once the individual products of the basket of goods have been determined and weights have been assigned to them, the selection of firms is made from which the prices of the individual survey items are collected on a monthly basis. The sample of reporting units is formed by using a combined method of targeted selection and cut-off procedure. To this end, the individual results from the production statistics of the base year are used as a data source in addition to the weighting scheme and the basket of goods. These production statistics contain the production values of the individual producers for all 9-digit GP codes In the selection of the reporting units, the number of reporting firms for each basket item is determined in a first step. The weight assigned to the item is decisive here. A basic rule is that at least one price series is necessary, and consequently one reporting firm must be selected per 0.1 weighting share. Furthermore it must be considered whether the price development of the basket item exhibited strong dispersion in the past. Where major dispersion was seen, a larger number of price series is useful. In some economic activities, only a small number of undertakings operates due to the market structures. Examples of such concentration can be found in the steel production sector. This sector is dominated by several large undertakings besides which only a few small undertakings have small market shares. The 0.1 rule is not followed in these cases, and for instance price surveys are conducted with all undertakings in this sector. The exact number of price-reporting undertakings is determined manually for each basket item After the number of reporting units per basket item has been determined, the selection of the reporting firms to be included in the sample is made in a next step. The basis on which this is decided is the production value of the undertakings. The data needed in this regard are provided by the production statistics which, however, exclude establishments with fewer than 20 workers. Consequently, only undertakings with a certain minimum size are contained in the sample. Since there is much fluctuation particularly in small establishments, it makes sense to apply this cut-off method in compiling the sample. When selecting an establishment which is below the cut-off limit, the probability that uniform price reports can be submitted with constancy for a longer period is lower than with establishments sized above this cut-off limit The individual data items are sorted in descending order by production values for each basket item. The selection is made using a top-down approach. As a rule, more reporting units are selected than was originally determined. Firstly, it must be considered that the response rate is below 100 %, and secondly, it makes sense to have reserve reporting units submit regular reports to be able to quickly compensate for any losses of reporting units Consequently, the selected sample will in all events contain the largest undertakings in which the 9-digit codes of the respective basket item are produced. The selection is made manually for each basket item, partially also taking regional aspects into consideration. All in all, the production values of the selected undertakings should cover as high a percentage of the total sales of this 9-digit GP code as possible. The final coverage will vary depending on the degree of concentration for each basket item The procedure used in combined basket items is similar; the undertakings of all 9- digit GP codes of the basket item are merely combined here, and the production values of all establishments are observed. The selection of the reported units is based on the same criteria as with the 9-digit GP codes pure and simple Table 5.4 shows, in an anonymised form, how the selection of individual reporting

48 Chapter 5 - Samples Page 8 of 11 as per: May 2011 units is made. Depending on the weight, the decision is made as to how many undertakings are addressed, with the individual production values providing the basis for the selection from the data pool. Table 5.4: Selection of the undertakings for the sample of reporting units GP no White sugar from cane or beet sugar, in solid form, not containing added flavouring Weighting share: 2.55 GP 2002 Firm no. Production values Selection Coverage Cumulated X X X X X X X X X X X X X X X X X X X X X X X Total At the same time as the selection is made, the total number of price reports to be submitted by an undertaking is investigated. Particularly where large firms are concerned, it frequently happens that these have been selected for several basket items or are requested to submit several price reports for one basket item. In this case it must be decided to what degree the undertaking is to be burdened. The advantage of having one undertaking submit several reports is that it simplifies collaboration with the reporting unit in organisational and methodical terms. On the other hand, it should be ensured that no single undertaking is requested to submit too many reports per month, as otherwise the effort this involves in the undertaking becomes very high and the quality of the reports and the willingness of the contacts to collaborate may be impaired. The goal is to strike the right balance between the number of undertakings and the number of price reports per undertaking Since the selection constitutes a targeted sample, no statements can be made as to sampling-related survey errors. Undertakings with major market significance are selected in the

49 Chapter 5 - Samples Page 9 of 11 as per: May 2011 final choice. As most markets are characterised by extensive transparency and free competition, a targeted sample provides representative price data as a rule. Changes usually concern the entire production activity regardless of the firm, so that the individual establishments within a market segment usually show similar price developments A fundamentally new compilation of the sample of reporting units only takes place in the framework of rebasing. This involves comparing the current reporting units with the previously used sample and contacting the newly-selected firms. A letter written to these undertakings is the first step for establishing contact. If the response rate is too low, a second and a third round follow until the requisite number of reporting units, including the reserve units, has been reached. Existing reporting units which were not re-included in the selection in the course of the new election are released from their obligation to report. The exact procedure is described in Chapter 9 Index calculation. E. Selection of the price representatives 5.30 After the basket of goods and the sample of reporting units have been determined, the final step is the selection of sales events by the reporting units. These sales events are referred to as price representatives A sales event is the unit comprised of precise product specification and sales conditions. The selection is made by the reporting undertaking. Each price representative is identified by a unique 11-digit processing number. This number consists of the nine digits of the basket item and an additional two-digit consecutive number When the reporting units make their selection of price representatives, they must observe certain criteria. First of all, the formal guidelines must be complied with. For instance, the selected product must correspond to the number in the goods classification system by which the basket item is represented. The undertaking hence uses the 9-digit GP code of the basket item to define a fixed product from its product range which has to be precisely specified. In addition, the price representative should have a major and stable sales significance within the undertaking. This is to ensure that the product is on the market for a longer period and its price development corresponds to the general market conditions of this group of goods. The price development of the product selected as the price representative in the sample should be representative of similar versions of the good not included in the price observation. Consequently, the aim is for the selected product to represent the basket item on behalf of all goods from the same 9-digit GP code produced in the reporting unit Once the reporting unit has opted for a specific sales event, this is followed by an exact description of the variant of the good, including information on the product definition and the sales conditions. The unit comprised of product description and sales conditions constitutes the so-called price-determining characteristics of the price representative, to which the reported price applies The current sample contains 7,153 reporting firms which report a total of 12,889 prices for 1,627 basket items. Some undertakings only report a single price series, whilst others are represented with several price representatives, either for one or for several basket items.

50 Chapter 5 - Samples Page 10 of 11 as per: May An example of a detailed description of a sales event is shown in the figure below. The product definition on the left-hand side of the specification provides for a clear attribution to the reporting unit s product range. Information on article numbers, product designations and versions facilitate unambiguous identification. The sales conditions, indicated on the right-hand side of the specification, are an additional element. A more detailed discussion of the individual elements of the price-determining characteristics is contained in Chapter 6 Data collection. Figure 5.3 Example of a completed price survey sheet F. Dealing with changes 5.36 Just as the weighting scheme (cf. Chapter 4), the individual samples are subjected to a fundamental revision in each rebasing. The regular update of the basket of goods, of the sample of reporting units and of the price representatives takes place every five years. Changes to the market conditions and structural shifts are taken into consideration in the rebasings In strictly theoretical terms, the index concept according to Laspeyres, on which the German producer price statistics are based, requires constancy both in the weighting and in the samples used. However, the theoretical constancy required is not feasible in practice. Many changes take place within the five-year term of a base period so that the originally-defined basis of the calculation has to be adjusted. The things that definitely do not change in this period are

51 Chapter 5 - Samples Page 11 of 11 as per: May 2011 the weighting scheme and the basket of goods. However, ongoing corrections are made as regards the composition of the sample of reporting units and the selection of price representatives. Even if these corrections violate the Laspeyres concept, they guarantee a largely consistently high level of representativeness in the index calculations Changes may occur for various reasons within the sample of reporting units. Firstly, the loss of a complete reporting unit is possible. In this case it is no longer possible to receive price reports. Consequently, a replacement is looked for using the most recent individual data available in the production statistics. Next, a letter is written to this replacement reporting unit and the price reports are incorporated in the next calculation. Secondly, in an annual review of the samples, individual reporting units are deliberately exchanged, especially in markets undergoing rapid structural change. By these means, the changed framework conditions and the new market situations are accounted for. The procedure used to select a new reporting unit is as described in section D Frequent changes are seen with the price representatives as well. Due to the flexibility of the market and rapid reactions to changing demand, new products are frequently launched on the market whose significance increases rapidly. New technologies and manufacturing possibilities also influence this trend. If the market significance of a new product, and hence also its sales, increase rapidly, it should be considered in the index In German practice, no changes are made to the basket of items outside of rebasing. However, in the framework of the regular price survey, the topicality of the selected price representatives is verified on an ongoing basis. The reporting units themselves should do this in accordance with the survey guidelines. The reporting units are expressly requested to do this in regular letters addressed to them An exchange of the price representatives can be either enforced or implemented deliberately. If the old product is no longer produced or has lost its market significance, replacement of the product becomes imperative. In this case, a replacement is searched for in the same reporting unit if at all possible. This is done using the procedure described in Section E. Special care must be taken here to ensure that the new price representative is classified within the same basket item. In contradistinction to enforced replacements, deliberate replacements take place when a new product has gained significance as a follow-up product or a new model and it makes sense to carry out an exchange. In this case, both products are classified within the same basket item, the exchange is carried out with the aid of appropriate quality correction procedures (cf. Chapter 7 Quality changes) The stability of the samples varies widely among the individual product groups. Whilst raw materials in particular, as well as semi-finished goods and some finished goods with a low innovation potential, show extensive constancy, product groups characterised by rapid technological progress require more frequent adjustments.

52 Chapter 6 Data collection Page 1 of 17 as per: May Data collection A. Introduction 1 B. Periodicity and time 1 C. Product specifications 2 D. Organisation of the data collection 4 E. Data verification 10 F. Particularities 14 A. Introduction 6.1 For the monthly calculation of the index of producer prices of industrial products (domestic sales), the necessary price data are regularly collected from the reporting units. The basis for the data collection is formed by the basket, which is re-formed each time rebasing is carried out (cf. Chapter 4 Weighting and Chapter 5 Samples). Representative reporting units are selected for each basket item and specified within these products for the price collections. In selecting, it is presumed that price changes of the products in the selected reporting units are representative of the respective goods group. A precise product definition ensures an unchanged framework and uniform quality of the prices stated, thereby making them comparable over time. Regular data collection produces a continuous price series, the basis for the calculation of price indices. B. Periodicity and time B.1 Frequency 6.2 The Act on Price Statistics of 9 August 1958 (Federal Law Gazette III item No ), most recently amended by Article 16 of the Act of 19 December 1997 (Federal Law Gazette Part I p. 3158), prescribes in section 8 subs. 1 a monthly price collection for industrial products. To this end, it is necessary for the current prices to be collected by the reporting units and transmitted to the Federal Statistical Office each month. 6.3 With some goods types, exceptions are made to the monthly price collection. These include goods types where contracts are concluded over a longer term, such as rolling stock, which within the country are almost exclusively sold to Bahn AG. In this case, the prices remain constant over a pre-defined time, a monthly report not being necessary. Equally, in other areas the reporting units may submit preliminary reports for coming months, but here too the prices reported thus remain constant for a period which is known in advance. With the aid of this method, the reporting unit saves a monthly price report, and it is only when price changes occur that there is a renewed report to the Federal Statistical Office. The reporting unit thus reports the price established for the months in question on the price collection sheet, or when submitting the information via the Internet; the collection sheet is not sent out, there is no request for online reporting, and a survey does take place again until after the preliminary report period. B.2 Time of the data collection 6.4 The determination of the precise time of the price collection by the reporting units is

53 Chapter 6 Data collection Page 2 of 17 as per: May 2011 also necessary in addition to the frequency of the data collection. The German producer price statistics use key date-related data as a rule. The 15 th of each month was determined as a key date for the producer price statistics. The reporting units report the prices for a contract concluded on this date for the defined price representative. With many products, above all mass products, transactions take place every day so that a key date-related collection can be made on the 15th. However, it may happen with products which have lower sales volumes per month that no new contract is concluded on this specific date. In this case, the price is used that was earned on one of the previous or the next days. 6.5 It is equally possible to establish the product-related average price of a month and to use this. This is however conditional on the prices that are input into the average calculation being identical as to the quality-defining characteristics. This cannot be ensured in most cases, so that the key-date prices are preferable as a rule. 6.6 The advantage of the key date-related price report lies in the better guarantee of comparability. The use of average prices poses a risk that the price development is distorted by structure and quality differences in two consecutive months. What is more, a key date-related calculation is simpler for the reporter since the price observation is restricted to a specific day and no average values have to be calculated. A further advantage is that the values of the current month are available earlier. The further processing of the price reports and the calculation of the overall index can already take place in the current month, so that the price index is available in the course of the following month. 6.7 The problem with transactions which are not implemented on the key date is to be regarded as a disadvantage. In this case, as mentioned above, the price is used which was achieved on a previous or following day. Furthermore, price fluctuations taking place between the key dates are not depicted. C. Product specifications C.1 General 6.8 The change in the prices over time is to be depicted with the aid of a price index for a specific product or a specific group of products. This is only possible if the observed products are comparable over time, and hence a change of the observed values is caused by a price change pure and simple. A price index can hence only reflect the price development pure and simple if the price-determining characteristics of the products agree in two consecutive periods under report. In order to safeguard this, the reporting units select products which are produced at the same quality for as long a period as possible and sold at constant sales conditions and are contained for a longer period in the product range of the undertaking. 6.9 Using the delimitation of the pre-defined 9-digit GP code, the undertaking chooses those products within its range which are representative of the basket item. The collection guidelines contain instructions for the optimal selection of the products and the precise definition of the product specification. Furthermore, the reporting units have contacts available at the Federal Statistical Office at all times. The price representatives are described in detail so that possible changes in the specifications are quickly recognised and a rapid reaction is possible in case of deviations between two periods. The precise product specifications are defined prior to the first data collection with the aim of recording a consistent price over the periods.

54 Chapter 6 Data collection Page 3 of 17 as per: May The product specifications of the individual price representatives are recorded on the price collection sheet (cf. Annex 1). In addition to the information on the reporting firm and the contact data in the Federal Statistical Office, this records the GP number, the goods description and the sales conditions. C.2 Goods description 6.11 The reporting units state in the goods description the essential qualitative characteristics of the selected product. The precise definition of the products is provided on the price collection sheet in the left-hand section. The purpose of the description is to describe the price representative such that the product is unambiguously defined For instance, the manufacturer s article number is a unique identifier for the selected goods. Equally, a detailed product designation containing information on implementation and the essential features leads to a precise description. What is more, packaging sizes and quantitative information constitute further statements which facilitate a precise identification of the goods, and hence make the product comparable in the price report. C.3 Sales conditions 6.13 In addition to the goods description, the precise sales conditions are also part of an unambiguous product specification. These are understood to be the special conditions at which the products are sold, and they exert a major influence on undertakings pricing, for instance the same product is frequently sold at different prices, depending on whether the seller is a re-seller or a final customer Table 6.1 shows the essential sales conditions, and in doing so examples are additionally listed for particularities of the price-determining characteristics This information helps to describe in detail the precise circumstances under which the product specified in the goods description is sold in order to obtain price reports with identical transaction conditions in the individual periods. By combining the goods description and the description of the sales conditions, a specific sales event is defined the price development of which is observed and documented over the periods. Table 6.1: Sales conditions in the product specification Sales conditions Economic level of the purchaser Type of dispatch (means of transport) Freight basis Price applies after deduction of /including following discounts /supplements Price applies excl. /incl. packaging, state type of packaging where appropriate Per volume unit Quantity purchased / delivered Payment conditions Example Processor, wholesale, retail, large consumer Haulage, rail freight, personal collection, own HGV ex works, ex warehouse, ex quay, free domicile, free delivery post office, free construction site Bulk, loyalty seasonal discount, commission for provision-based transactions, supplements in Euro or % In bags, boxes, cardboard packaging, tanks, barrels, canisters, on pallets (1, 10, 100, 1000, ), kg, dt, t, m, m 2, m 3, l, hl, item, pallet Total quantity regularly purchased / delivered: container, pallet 30 days credit, net cash, cash discount, 3% discount

55 Chapter 6 Data collection Page 4 of 17 as per: May 2011 C.4 Particularities 6.16 As has been described, each reporting unit itself selects representative sales events in the framework of the prescribed basket item. This means that the price-determining characteristics and hence the amount of the prices reported may differ considerably from one reporting unit to another Particularly with the determined sales conditions, differences mostly exist between the price representatives of the individual reporting units of a basket item. For instance, with the 9-digit GP code Manufacture of sugar, price reports for various volume units are received by the Federal Statistical Office. Whilst a reporting unit reports the observed price per 100 kilograms, the data of another reporting unit refer to a tonne of the product. For this reason, it does not make sense to establish average prices for a basket item, and the Federal Statistical Office also does not do so For some reporting units it is difficult to find representative products for certain basket items. Some products are only manufactured to order, so that a product is only manufactured once with a specific specification and cannot be compared over the periods. This is for instance frequently the case in the manufacture of machinery and equipment. In most cases, with the reporting unit the definition of a model product, including modelled sales conditions, can be agreed for which the price which can be earned on the market is estimated in the view of the reporting unit. Also in this case, the specifications must be detailed in order to be able to portray possible changes in quality. Just as with the products which really exist, it is necessary to compare like with like over the period. The precise method in these cases is explained in Chapter 10 Special products Chapter 3 Scope and classifications already discussed the problem of average and list prices. D. Organisation of the data collection D.1 Design D.1.1 Traditional collection sheet 6.20 The core of the price reports is the price collection sheet (cf. Annex 1). Apart from the specification for the product, this contains in the lower area fields in which the prices observed are entered on a monthly basis. It should be ensured that the prices transmitted are earned for the transaction described in the specifications in order to ensure the comparability of the prices over the periods The price collection sheet consists of a standard design for all product types, and is used as a pendulum list between the Federal Statistical Office and the reporters. This ensures that important information is noted in a comprehensible manner and that changes and adjustments can be recorded rapidly. The clear and uniform structure of the price collection sheet minimises the occurrence of errors and misunderstandings A contact with a telephone number is noted on each price collection sheet, in addition to the firm name and address, as well as the contact data of the Federal Statistical Office. The firm number and GP number complete the header of the sheet. Furthermore, the exact

56 Chapter 6 Data collection Page 5 of 17 as per: May 2011 goods description stated by the reporting firms is noted, with the aid of which the selected product can be unambiguously identified. In addition to quantitative and qualitative information, which is frequently described via the product designation, model or type and article number, the sales conditions are vital. The monthly price reports are entered in the fields designated in the lower part. Notes on changes can also be made here Fixed contacts in the Federal Statistical Office are allocated to each 2-digit GP code, and their name and telephone number is noted on the header of the form. By virtue of its design as a pendulum list, the sheet provides each reporting unit at all times with an overview of the price development of the reported price representative. This makes it possible to avoid early errors since the reporting unit can estimate when making their entry whether the current report can match the price development previously depicted, or whether information must be provided on price development. Reasons should be given in particular when unusual price developments occur (Notes column). Additional space is available on the reverse for more detailed reasons Information for completion of the individual items is contained on the reverse of the sheet. Additionally, the reporter receives on first dispatch of the questionnaire detailed guidelines for the completion of the collection forms (cf. Annex 2) and information on the statutory basis for the collection (cf. Annex 3) The collection sheets of the producer price statistics correspond to the corporate design of the Federal Statistical Office The guidelines indicate for the completion of the collection forms on the statistics of producer prices of industrial products (domestic sales), firstly, the statutory basis of the price statistics and the most important goals of the producer price statistics. The content of the individual fields is then described in a detailed form. After this, information is provided on dealing with problems and changes occurring The purpose, nature and scope of the collection is explained in the information on the statutory basis of the collection in accordance with section 16 of the Federal Statistics Act. Furthermore, the legal basis is specified, and it is stated that the selected undertakings are obliged to provide information. A note that the information will not be disclosed completes this information. D.1.2 Online questionnaire 6.28 In addition to a collection sheet in printed form, the reporting units may also transmit the data with the aid of an online questionnaire. This service has been available since October 2006 to all producer price statistics reporting units, and this takes place via the IDEV application that has been programmed by the Federal Statistical Office (Internet Datenerhebung im Verbund [Combined Internet Data Collection]). The following figure shows the starting template of the online collection, which the reporting units can use to enter their data, protected by a password. They receive the necessary login data on request from the Federal Statistical Office. You can see here the start page of IDEV with the general information on the reporting unit, the login having been performed here as a guest firm. This website lists the reporting unit-specific data for the users of the online collection which can be verified in this framework in each monthly price report.

57 Chapter 6 Data collection Page 6 of 17 as per: May 2011 Figure 6.1 Start template of the online questionnaire 6.29 All data are collected with the aid of the online survey which also need to be noted in the price collection sheet. The price report tab enables the reporting unit to enter the current price if the price-determining characteristics of the price representative are unchanged in comparison to the previous period. The following figure shows the template for the price report.

58 Chapter 6 Data collection Page 7 of 17 as per: May 2011 Figure 6.2 Template for the price report in the online collection 6.30 Just as in the price collection sheet, changes can also be made to the goods description or the sales conditions when data are input via IDEV. To this end, the following template can be opened with the aid of the Change tab. It is expected that a comparable previous month s price is to be input in this template, in addition to the current price for the new price representative description 1. Furthermore, it is possible to state here until when the input price is valid. 1 Comparable previous month s price: price which was earned or could have been earned by the new sales event in the previous period; if a comparable previous month s price has been entered, this means that the price-determining characteristics of the price representative have changed.

59 Chapter 6 Data collection Page 8 of 17 as per: May 2011 Figure 6.3 Change template in the online collection 6.31 The reporting unit can display an overview of the prices reported to date via the History tab (Historie), and the Notes tab (Bemerkungen) can be used to state more detailed reasons for price changes. Further help functions are integrated; direct contacts at the Federal Statistical Office are named The advantage of inputting the data via the Internet is that the collection sheets do not need to be sent via the post. Furthermore, the information received at the Federal Statistical Office is passed on directly for further processing, it no longer being necessary to input the price reports manually. Additionally, initial checks can be carried out, such as to check for the completeness of the information received. The reporting unit can only release the input, and hence send it to the Federal Statistical Office, when all required entries have been made. D.2 Procedure D.2.1 Initial collection in a reporting unit 6.33 When compiling the sample of reporting firms, the undertakings are determined which are to implement price collections as reporting units. The precise procedure to be followed when selecting the potential reporting units is described in Chapter 5 Samples. The economic units thus selected receive a letter (cf. Annex 4) containing explanations and instructions, as well