Archive:New indicator for import prices
This Statistics Explained article has been archived - for recent articles on short-term business statistics see here.
- Published in Sigma - The Bulletin of European Statistics, 2007/02
Eurostat will shortly have two indicators to use to assess increases in the price of imports. Alongside the long-established import unit value indices (UVIs) , there will also be the import price index. Liliana Apostol of Eurostat’s Short-term Statistics Unit, responsible for the IPIs, and Karo Nuortila of the International Trade Statistics Production Unit, responsible for the UVIs, explain the differences between these two indicators and why the IPI is needed.
Introduction
Mr Nuortila starts by explaining what the UVIs are. ‘The UVIs are calculated directly from the existing external trade data. In principle, they are simply the total value of imports of a product, divided by the total amount imported — for most products this is measured in weight. They have a long history, and long time series are available.’
One of the key features of the UVIs is the level of detail available. As Mr Nuortila says, ‘We can calculate elementary UVIs for around 10 000 products, based on the most detailed level of the Combined nomenclature used for classifying external trade. These elementary UVIs are further aggregated by different product classifications, such as Standard international trade classification or Broad economic categories. Then there are more than 200 partner countries, and the 27 Member States as well as the European aggregates. As you can see this gives a very large number of possible series.’
The new import price indices
In contrast to the long history of UVIs, IPIs are a new product for Eurostat, although some Member States, including in particular Germany, have already produced them.
‘In 2000, in the context of the economic and monetary union action plan, the European Commission’s Directorate-General for Economic and Financial Affairs and the European Central Bank strongly expressed a need for more specific statistical information to reflect short-term economic developments in the euro area. In line with this plan the Regulation on short-term business statistics was amended in 2005. One important amendment was the addition of a new variable to be delivered by euro-area Member States: the import price index’, Ms Apostol explains.
‘The first priority for Eurostat is to get reliable results at a euro-area level rather than all the detailed results at a country level. So Eurostat has put in place a European sample scheme for the transmission of the data. Member States who take part in the scheme only have to collect prices of a few products that are big enough to be significant at the level of the euro area. Those Member States who do not take part in the European sample scheme provide a full set of data’, she continues.
‘The European sample scheme both allows a more rapid implementation of the import prices indicator in order to meet the users’ needs and a significant reduction of the collection burden, especially for small Member States.’
‘The IPI covers the industry sector, mostly manufactured goods but also minerals, electricity, gas and water. It measures the change in the import price of products coming from abroad and it reflects an average of the changes in the prices of a specified set of items.’
‘The IPI should become available in autumn 2007, and the series is monthly and started in January 2006. As for the level of detail, this will be the two digit level of the statistical classification of products by activity, about 28 product categories, with priority for the partner “extra-euro area”.’’
Why a new indicator?
So why is this new indicator needed? Ms Apostol explains: ‘The IPI is designed to capture pure price changes. The UVIs record price changes due not only to the evolution of prices, but also due to quality changes and changes in the mix of products. All these are hidden in the same index.’ Mr Nuortila expands on this point. ‘For some products the Combined Nomenclature defines a product very precisely. For many products though the definition covers a range of products, with very different prices. Motor cars for example are divided into only about 20 codes, based on the engine size and whether they are new or used.… A change in the mix of imports, with no real price increase, can therefore affect the UVI.’
Strengths and weaknesses
So what are the strengths of each index, and who uses them? ‘For the IPI, its strength is the link with the real economy, showing inflationary pressures due to prices changes in imported goods. Its weaknesses are the level of detail available. Due to the potential response burden, it is likely this will remain limited,’ says Ms Apostol. ‘The IPI will be used by the ECB and Economic and Financial Affairs DG for macroeconomic analyses.’
‘For the UVIs, their strengths are the huge amount of detail available, and their cost effectiveness, as they are collected as a side product of external trade data. Their weakness is that they include a range of effects in one index,’ explains Mr Nuortila. ‘They are the only source of data for detailed analyses by product and partner.’