PRICE INDICES. MD. Shahabuddin Sarker Deputy Director National Accounting Wing Bangladesh Bureau of Statistics

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1 PRICE INDICES MD. Shahabuddn Sarker Deputy Drector Natonal Accountng Wng Bangladesh Bureau of Statstcs StatCaB Tranng Programme of SESRIC on Prce Statstcs Brune, July 18-20, 2017

2 What s prce? Defntons A prce s the amount of money that buyer gves a seller n exchange for a good and servce. The sum or amount of money or ts equvalent for whch anythng s bought, sold, or offered for sale What s market? Market s not only a place rather a mechansm where goods or servces are sold by bddng among the buyers. What s an ndex? A number ndcatng change n magntude, as of prce, wage, employment, or producton shfts, relatve to the magntude at a specfed pont usually taken as 100. What s Prce ndex? A prce ndex s a normalzed average (typcally a weghted average) of prce relatves for a gven class of goods or servces n a gven regon, durng a gven nterval of tme.

3 Defntons What s Basc Prce? The basc prce s the amount recevable by the producer exclusve of taxes payable on products and nclusve of subsdes recevable on products. The equvalent for mported products s the c..f. (cost, nsurance and freght) value, that s, the value at the border of the mportng country. What s Producers Prce? The producer prce s the amount recevable by the producer nclusve of taxes on products except deductble value added tax and exclusve of subsdes on products. The equvalent for mported products s the c..f value plus any mport dutes or other taxes on mports (mnus any subsdes on mports). Producer prces = Basc prces + taxes on products (excludng VAT) - subsdes on products What s Purchaser Prce? The purchaser s prce s the amount pad by the purchaser, excludng any deductble VAT or smlar deductble tax, n order to take delvery of a unt of a good or servce at the tme and place requred by the purchaser; the purchaser s prce of a good ncludes any transport charges pad separately by the purchaser to take delvery at the requred tme and place. A purchaser s prce for a product s the producer s prce plus suppler s retal and wholesale margns, separately nvoced transport and nsurance charges and nondeductble taxes on products payable by the purchaser. Purchasers prces are the prces most relevant for decson-makng by buyers. Purchaser prces = Producer prces + trade and transport margns + non-deductble VAT

4 Macroeconomc Stablty What s Macroeconomc Stablty: Accordng to Stanley Fsher (1993), Inflaton s low and predctable Real nterest rates are approprate Fscal polcy s stable and sustanable Real Exchange Rate s compettve and predctable BOP poston s perceved (predctable) and vable(workable)

5 Laspeyres Prce Index a. Prce* Quantty Verson LP 0 t = q,0 p,0 q,o b. Weghted Prce relatve Verson LP 0 t = p,0 p,0 q,0 p,0 q,0 = p,0 w,0 Arthmetc average of prce relatves wth base perod weghts

6 Laspeyres Volume Index a. Prce* Quantty Verson LQ 0 t = p,0q,t p,0 q,o b. Weghted Quantty Relatve Verson LQ 0 t = q,t q,0 p,0 q,0 p,0 q,0 = q,t q,0 w,0 Arthmetc average of quantty relatves wth base perod weghts

7 a. Prce* Quantty Verson Paasche Prce Index PP 0 t = q,t p,0 q,t b. Weghted Prce relatve Verson PP 0 t = = p,0 w,0 q,t q,t Harmonc average of Prce relatves wth current perod weghts

8 a. Prce * Quantty Verson Paasche Volume Index PQ 0 t = q,t q,0 b. Weghted Quantty Relatve Verson PQ 0 t = q,t q,0 q,t q,t = q,t q,0 w,t Harmonc average of quantty relatves wth current perod weghts

9 Palgrave Prce Index a. weghted Prce Relatve Verson p,0 q,0 PalP 0 t p,0 p,0 q,0 = p,0 w,t Arthmetc average of prce relatves wth current perod weghts

10 Fsher Index Fsher Prce Index FP 0 t = LP o t PP 0 t Fsher Volume Index FP 0 t = LQ o t PQ 0 t Geometrc average of Laspeyres and Paasche ndces

11 Lowe Prce Index LoP 0 t = q,b = p,0 q,b p,0 p,0 q,b p,0 q,b = p,0 s,b In practce t s nvarably the case that b 0 t Where, b= weght reference perod and 0= Prce reference perod

12 Advantages and dsadvantages Advantages of Fsher the ndex s call Ideal because t satsfes varous tests such as tme reversal (ndex for t based on 0 should be the recprocal that for o based on t) and Factor reversal (the product of the prce ndex and volume ndex should be equal to the proportonate) tests. It s extensvely used n general economc statstcs Dsadvantages of Fsher Fsher needs both Laspeyres and Paasche whch leads costng and delay Laspeyre and Paasche s more smply understandable measurng change n the value of specfed basket of goods and servces. Fsher ndex s not addtvely consstent. It cannot be used to create an addtve set of constant prce data It s extensvely used n general economc statstcs Advantages of Laspeyres Most commonly used ndex

13 Advantages and dsadvantages Two man requrements for volume and prce measures n an accountng system Volume measures for multplcty of goods and servces wthn an accountng framework should for each perod be addtve The aggregate prce measure tmes the aggregate volume measure should be equal to the current prce The par (Product) of Laspeyres volume and Paasche prce ndces, Vo-t= PPo-t*LQo-t. The Laspeyres Volume ndex conssts of two addtve components. Lq = Q 0 t = p,o q,t =today at the base perod s prces (const) V 0 = p,o q,o = the base perod at current prces The par (Product) of Laspeyres Prce and Paasche Volume ndces, Vo-t= LPo-t*PQo-t. The Paasche Volume ndex conssts of two addtve components. Pq = P 0 t = p,o q,0 =the base perod at today s prces V t = q,t = today at current prces Satsfes the complaton requrments

14 Recommendatons SNA recommendatons for Prce and Volume measures: State of Art: Ideal method s Annually chaned Fsher prce and volume ndces for GDP and ts component Second best s Annually chaned Laspeyres volume and Paasche prce or Paasche volume and Laspeyres prce