15.1 This chapter is about value aggregates and their associated price indices in an integrated system of economic statistics. To understand why value aggregates are important, we foreshadow the next chapter, which addresses concepts for decomposing value aggregates into price and volume components. Chapter 16 begins with defining a value aggregate in equation (16.1) as the sum of the products of the prices and quantities of goods and services. Equations (16.2) and (16.3) characterize a price index as the factor, given the relative change in the value aggregate, arising from changes in prices. Not surprisingly, then, to define a price index, it is first necessary to define precisely the associated value aggregate.

A. Introduction

15.1 This chapter is about value aggregates and their associated price indices in an integrated system of economic statistics. To understand why value aggregates are important, we foreshadow the next chapter, which addresses concepts for decomposing value aggregates into price and volume components. Chapter 16 begins with defining a value aggregate in equation (16.1) as the sum of the products of the prices and quantities of goods and services. Equations (16.2) and (16.3) characterize a price index as the factor, given the relative change in the value aggregate, arising from changes in prices. Not surprisingly, then, to define a price index, it is first necessary to define precisely the associated value aggregate.

15.2 Four of the principal price indices in the system of economic statistics—the consumer price index (CPI), the producer price index (PPI), and the export and import price indices (XMPIs)—are well known and closely watched indicators of macroeconomic performance. They are direct indicators of the purchasing power of money in various types of transactions and other flows involving goods and services. As such, they also are used as deflators to provide summary measures of the volume of goods and services produced, consumed, and traded. Consequently, these indices are important tools in the design and conduct of the monetary and fiscal policy of governments, and they are also useful in informing economic decisions throughout the private sector. They do not, or should not, comprise merely a collection of unrelated price indicators but provide instead an integrated and consistent view of price developments pertaining to production, consumption, and international transactions in goods and services. By implication, the meaning of all of these indices derives in no small measure from the significance of the value aggregates to which each refers.

15.3 Section B of this chapter establishes the relationships among the four major price series, as well as their relationships with a number of supporting or derivative price indices. It does this by associating them with certain aspects of the interlocking aggregates defined in the Commission of the European Communities and others (2008), System of National Accounts 2008 (2008 SNA).1 Section C briefly considers purchasing power parities in the system of economic statistics.

15.4 The reader interested in a survey of the goods and services accounts of the 2008 SNA and how it interrelates to the full range of price indices in the economy will find the entire chapter of interest. Readers engaged principally in compiling XMPIs should focus on Sections B.1.1, B.1.2, B.1.3.1, B.1.3.5, B.1.3.6, B.2.2, and B.3, because these deal directly with the XMPIs. This sequence of sections skips over explanations of how the 2008 SNA builds up the consumption, capital formation, and external trade flows in the supply and use table (SUT) from the accounts of individual economic agents. Also skipped in this sequence are the total economy price indices for total supply, final uses, and GDP, and the price index for labor services.

15.5 Section B.5 also may be of interest to compilers, because it focuses on how the XMPIs relate to other major price indices. Chapter 5 of this Manual on weights and their sources cross-references the current chapter, which defines the institutional unit and transactions scope of the XMPIs. This chapter also lays out the conceptual framework for the weights of the XMPIs. Chapters 4 and 7 on price collection discuss the practical dimensions of defining the price to be collected, cross-referencing the current chapter regarding the price valuation basis for the XMPIs.

B. Major Goods and Services Price Statistics and National Accounts

B.1 National accounts as a framework for the system of price statistics

15.6 The significance of a price index derives from its referent value aggregate.2 This chapter considers the core system of value aggregates for transactions in goods and services that is clearly of broad economic interest: the system of national accounts. The major price and quantity indices should, in principle, cover those value aggregates in the national accounts system representing major flows of goods and services and levels of tangible and intangible stocks. If the coverage of the major indices is not complete relative to the national accounts aggregates, then it should be compatible with and clearly related to the components of these aggregates. This chapter shows how the national accounts positions headline price indices such as the CPI, PPI, and XMPIs and these indices can be logically linked.

15.7 The 2008 SNA, Paragraph 1.1, describes itself as follows:

1.1 The System of National Accounts is the internationally agreed standard set of recommendations on how to compile measures of economic activity in accordance with strict accounting conventions based on economic principles. The recommendations are expressed in terms of a set of concepts, definitions, classifications and accounting rules that comprise the internationally agreed standard for measuring such items as gross domestic product (GDP), the most frequently quoted indicator of economic performance. The accounting framework of the System allows economic data to be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making. The accounts themselves present in a condensed way a great mass of detailed information, organized according to economic principles and perceptions, about the working of an economy. They provide a comprehensive and detailed record of the complex economic activities taking place within an economy and of the interaction between the different economic agents, and groups of agents, that takes place on markets or elsewhere. The framework of the System provides accounts that are:

  1. comprehensive, in that all designated activities and the consequences for all agents in an economy are covered;

  2. consistent because identical values are used to establish the consequences of a single action on all parties concerned using the same accounting rules;

  3. integrated in that all the consequences of a single action by one agent are necessarily reflected in the resulting accounts, including the impact on measurement of wealth captured in balance sheets.

15.8 The accounts cover the major activities taking place within an economy, such as production, consumption, trade, financing, and the accumulation of capital goods. Some of the flows involved, such as income, saving, lending, and borrowing, do not relate to goods and services, so not all of them can be factored into price and quantity components.3 However, the 2008 SNA also contains a comprehensive framework, the SUT, discussed in more detail below, within which the relationships between the main flows of goods and services in the economy are established and displayed. The coverage and contents of these flows are defined, classified, and measured in a conceptually consistent manner. The SUT clearly shows the linkages between major flows of goods and services associated with activities such as production, consumption, distribution, importing, and exporting. It provides an ideal framework for designing and organizing a system of internally consistent price statistics that relate to a set of economically interdependent flows of goods and services. Not only are the relationships between consumer, producer, import, and export prices established within such a table, but so are their linkages with price indices for major macroeconomic aggregates such as GDP.

15.9 This overview of price indices first takes a top-level view of the major national accounts aggregates. It then reviews the underlying construction of these aggregates. It first considers the types of economic agents that the national accounting system recognizes. It then considers the economic accounts kept on transactions that build up to the main aggregates. As these accounts are built from their foundations, precise relationships emerge between the well-known headline price indicators—the CPI, PPI, and XMPIs—and the closely watched national accounts aggregates.

B.1.1 Supply and use of goods and services in the aggregate

15.10 At the most aggregate level, the supply and use of goods and services in the national accounts is the simple textbook macroeconomic identity equating total supply with total uses. Total supply is the sum of output Y, imports M, and taxes less subsidies on products T. Total uses is the sum of intermediate consumption Z, the final consumption of households C and government G, capital formation I, and exports X:4


15.11 Rearranging this identity by subtracting intermediate consumption and imports from both sides reveals the familiar alternative expressions for GDP from the production (value-added) and expenditure approaches:


GDP is internationally recognized as the central national accounts aggregate for measuring national economic performance. It is essentially a measure of production, distinct from final demand. More precisely, it measures the value added of the productive activity carried out by all the units resident in an economy. Because imports are not included in GDP, a price index for GDP tracks internally generated inflation. Compiling indices for tracking the parts of relative change in GDP and its components that can be attributed to price and volume change is one of the primary objectives for developing price statistics in modern statistical systems.

15.12 As explained in more detail later, the SUT in the 2008 SNA is a comprehensive matrix covering the economy that exploits the identities, equations (15.1) and (15.2), at a disaggregated level. Each row of the matrix shows the total uses of a commodity, or group of commodities; each column shows the total supplies from domestic industries and imports. The SUT provides an accounting framework that imposes the discipline of both conceptual and numerical consistency on data on flows of goods and services drawn from different sources. The flows have to be defined, classified, and valued in the same way, and any errors have to be reconciled. The SUT provides a good basis for compiling a set of interdependent price and quantity indices. In the following sections, the various elements or building blocks that make up the SUT are outlined. Then reference will be made to SUTs in volume terms to which XMPIs naturally relate.

B.1.2 Institutional units and establishments: Economic agents and units of analysis in the national accounts

15.13 In building the accounting system and the major aggregates Y, M, T, Z, C, G, I, and X of equations (15.1) and (15.2), the 2008 SNA first organizes the economy of a country into the kinds of entities or agents that undertake economic activity. These agents are called institutional units and comprise five types of units that are resident in the economy, as well as a single nonresident category—the rest of the world. An institutional unit is resident in an economy if its primary center of economic interest is located there.5 The five types of resident institutional sectors are nonfinancial corporations, financial corporations, general government, households, and nonprofit institutions serving households (NPISHs). Generally speaking, the 2008 SNA associates with institutional units the ability to hold title to productive assets, and thus they represent the smallest units on which complete balance sheets can be compiled.6

15.14 For analyzing production, the 2008 SNA identifies a unit or agent smaller than an institutional unit called an establishment or local kind of activity unit (LKAU). Within an institutional unit, the establishment is the smallest unit organized for production whose costs and output can be identified separately. Generally, establishments specialize in the production of only a few types of output at a single location.

15.15 In addition to production activity, institutional units may engage in final consumption of goods and services and in capital formation, represented by the accumulation of goods and services as productive assets. The 2008 SNA classification of institutional units into sectors is shown in Box 15.1. Notice that the 2008 SNA institutional sectors represent the units typically covered in economic and household censuses and surveys. The 2008 SNA, as indicated by its name, focuses on the activities of institutional units that are resident in a nation. A provision for the rest of the world (S.2 in Box 15.1) is made to capture the transactions of resident institutional units with nonresidents. This enables balanced accounts to be derived for transactions that include that part of output directed to the rest of the world as exports and parts of intermediate consumption, final consumption, and capital formation arising from the rest of the world as imports. Transactions of nonresidents with other nonresidents are out of scope for the national or regional accounts of a given country or region.

Institutional Sectors in the System of National Accounts 2008

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S131 and S132 are alternative coding systems.

B.1.3 Constructing the system of supply and use flows from accounting data on institutional units

15.16 Equations (15.1) and (15.2) identified the basic aggregates comprising the total supply and uses of goods and services in the economy, and derived GDP in terms of these aggregates. To separate the price and volume components of supply and use, it is necessary to build these basic aggregates from the institutional sector accounts of the economy’s economic agents. One must detail the production and consumption activities of these agents, as well as the types of goods and services they produce and consume. The framework within which this information is organized is the SUT in the national accounts. As it is built, the SUT also effectively begins to accumulate data on the price (or volume) index weights considered in Chapter 5. The basic accounts of the 2008 SNA in which all of these aggregates are recorded at the level of institutional units are the production, use of income, capital, and external goods and services accounts. These accounts organize the information for the following top-level aggregates:

  • Production account: output Y, intermediate consumption Z, and value added Y – Z;

  • Use of income account: household consumption C and government consumption G;

  • Capital account: capital formation K; and

  • External goods and services account: exports X and imports M.

B.1.3.1 Recording transactions in goods and services

15.17 Before this chapter further elaborates on these four goods and services accounts, it is important to specify how each entry in the value aggregates comprising them is to be recorded. The items in the value aggregate equation (15.1) represent detailed goods and services flows classified into categories of transactions. There are two defining aspects of recording transactions: timing and valuation.

B. Timing of transactions covered

15.18 To associate each transaction with a date, the national accounts consider a transaction to have been consummated when the event takes place that creates the liability to pay. In the case of flows of goods and services, this occurs when the ownership of the good is exchanged or when the service is delivered. When change of ownership occurs or the service is delivered, a transaction is said to have accrued. In general, this time need not be the same as the moment at which the payment actually takes place.

B. Valuation

15.19 There are two valuation principles in the national accounts, one for suppliers and one for users. For suppliers, transactions in goods and services are valued at basic prices. The basic price is the price per unit of good or service receivable by the producer.7Because the producer does not receive taxes (if any) on products but does receive subsidies (if any) on products, taxes on products are excluded from the basic price, whereas subsidies on products are included.8 The producer also does not receive invoiced transportation and insurance charges provided by other suppliers, or any distribution margins added by other retail or wholesale service producers, and these also are excluded from the basic price. On the other hand, the user, as purchaser, pays all of these charges. Users’ purchases are therefore valued at purchasers’ prices, which add taxes net of subsidies on products and margins for included transportation, insurance, and distribution services to the basic price.

15.20 Accordingly, output Y and imports M in equations (15.1) and (15.2) are valued at basic prices, to which are added taxes less subsidies on products T to arrive at total supply.9 The components of total uses are valued at purchasers’ prices. This is clearly interpreted for the final consumption of households and government. For capital formation expenditures, the notion of purchasers’ prices also includes the costs of setting up fixed capital equipment. For exports, purchasers’ prices include export taxes net of subsidies. Now each of the four major goods and services accounts is discussed in turn.

B.1.3.2 Production

15.21 An institutional unit engaged in production is said to be an enterprise. By implication, any of the five types of resident institutional units can be an enterprise. The production account for enterprises in the 2008 SNA appears, with minor reordering of elements, essentially as shown in Table 15.1. An identical presentation also applies to the establishments or LKAUs owned by enterprises and, in fact, an establishment can be defined operationally as the smallest unit for which a production account can be constructed. There are cases in which an establishment or LKAU is synonymous with, or at least inseparable from, the institutional unit that owns it. This is true of single establishment corporations and of household unincorporated enterprises, for example. In other cases, an enterprise may own multiple establishments. The production account also can be produced for various establishment and enterprise groupings, including institutional sectors, and for establishment industry activity groups. In the production account and throughout the 2008 SNA, the transaction codes beginning with “P” refer to entries for transactions in goods and services. The codes beginning with “B” refer to so-called “balancing and net worth items,” which are defined residually as the difference between a resources total and the sum of itemized uses of those resources. B1g, for example is the balancing value added, the “g” referring to it being gross value added.

Table 15.1.

Production Account for an Establishment, Institutional Unit, or Institutional Sector

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Note: 2008 System of National Accounts (2008 SNA) items in bold refer to flows in goods and services.

15.22 For classifying an establishment or LKAU, output is broken down into market output and two types of nonmarket output. Market output (P11) is sold at economically significant prices substantially covering the cost of production. Nonmarket output is provided without charge or at prices so low they bear no relationship to production cost. The two types of non-market output are output for own final use (P12) and other nonmarket output (P13). Output for own final use includes the production of, for example, machine tools and structures (fixed capital formation items) by an establishment for the sole use of the establishment itself or other establishments in the same enterprise; the imputed rental value of certain productive assets owned by households, such as (and currently limited to) owner-occupied dwellings; and the production of certain other unincorporated household enterprises, such as agricultural products produced by a farmer for consumption by his or her own family or employees. Other nonmarket output comprises the output of general government and NPISHs distributed free or sold at prices that are not economically significant. For price index construction, only those transactions of establishment units that involve economically significant prices, and thus market output (P11), are relevant. However, the prices collected for market output items also may be used to value the own final use portion of nonmarket output (P12). Our scope of coverage for price indices thus extends to cover this component of nonmarket output as well.

15.23 A production unit’s resources derive from the value of its output, and its uses of resources are the costs it incurs in carrying out production. The production account therefore uses both the basic price and purchasers’ price methods of valuation, as appropriate to a production unit in its roles as a supplier and a user of products. For the supply (resources) of goods and services, products are valued at basic prices, the national currency value receivable by the producer for each unit of a product. They include subsidies and exclude the taxes on products and additional charges or margins on products to pay for included retail and wholesale trade services, and for included transportation and insurance. For uses of goods and services, products are valued at purchasers’ prices, the national currency value payable by the user for each unit of a product, including taxes on products, and bundled but separately invoiced services, such as trade and transport margins, and excluding subsidies on products.

15.24 Product detail in the production account. In addition to breaking down output into its market and nonmarket components, output and intermediate consumption also can be broken down by type of product. With product types classified using, for example, the international standard Central Product Classification (CPC, version 2.0), the production account for each establishment appears as in Table 15.2.

Table 15.2.

Production Account with Product Detail for an Establishment or Local Kind of Activity Unit

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Note: 2008 SNA items in bold refer to flows in goods and services.

15.25 Industry detail in the production account. The entries in Table 15.3 of total output by product and total market and nonmarket outputs for each establishment allow us to classify establishments by their principal activity or industry and market/nonmarket status. To reflect the information required for this classification, positions for the activity and market or nonmarket classification codes of the establishment are shown in the first line of Table 15.2.10 The activity classification involves principally, if not exclusively, sorting establishments according to the types of product (CPC code ccccc or other product code, such as the Classification of Products by Activity) for which the total output is greatest. The major categories of the International Standard Industrial Classification of All Economic Activity (ISIC), Revision 4, are shown in Box 15.2.

Table 15.3.

Industry/Activity Production Account with Detail for Products and Market/Nonmarket

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Note: 2008 SNA items in bold refer to flows in goods and services.

15.26 The associated products are grouped in the production accounts by activity and output transaction status, and each entry of the accounts is summed across all establishments within each industry and output transaction status category. Table 15.3 shows a model production account for an industry (identified by activity code aaaa). This account is an aggregate of the production accounts of establishments classified into that industry and according to whether they are principally market, own final use, or other nonmarket producers. In most cases, both the establishment and industry production accounts would show higher product detail than has been shown here, preferably at the four- or five-digit CPC level, or higher with country-specific extensions.

15.27 Output aggregate for the PPI in the production account. The PPI is an index of the prices of the outputs of establishments. The position of the PPI in the 2008 SNA is defined by the relationship of its output value aggregate to those defined in the national accounts. Box 15.2 considers the formation of the PPI value aggregate according to its industry coverage, arguing that the PPI’s industry coverage should be complete. The coverage of the PPI across the type of output by market status is shown under the column of Table 15.3 labeled P11 Output (basic prices), market. For most establishments, output for own final use, P12, comprises only capital formation, such as acquisition of machine tools or construction. Household establishments also may produce goods for households’ own consumption, such as food, and this activity is included within the 2008 SNA production boundary. Large portions of P12, output for own final use, may be valued at market prices if close market substitutes are available but otherwise at the cost of production (2008 SNA, Paragraph 6.91). In principle the weighting of items in the PPI could be extended to cover the market-valued portion of P12. The scope of the PPI would not extend to P13, other nonmarket output, because this is almost without exception valued at production cost because rarely are market equivalents available, and thus there is no basis for constructing an explicit price index.

B.1.3.3 Consumption

15.28 Final consumption of goods and services in the 2008 SNA is shown in the use of income account, which appears essentially as in Table 15.4 for each institutional unit. Recall that the 2008 SNA designates goods and services items with the codes “Pn.” These goods and services flows can be decomposed into price and volume components and thus would draw our interest as price index compilers. Items of final consumption are designated by P3 with extensions. P3 comprises individual consumption expenditure (P31) and collective consumption expenditure (P32).11

Table 15.4.

Use of Income Account for Institutional Units and Sectors

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Note: 2008 SNA items in bold refer to flows in goods and services.

By definition, corporations have no final consumption in the 2008 SNA. Thus, item P3 and its subdivisions appear with nonzero entries only for household, government, and NPISH units.

The 2008 SNA derives disposable income in a sequence of accounts producing the balancing items Value added B.1g (production account), Operating surplus B.2g and Mixed income B.3g (generation of income account), Balance of primary incomes B.5g (allocation of primary income account), and Disposable income B.6g (secondary distribution of income account). Collapsing all of these steps, Disposable income B.6g is Value added B.1g less (net) taxes on production and imports (payable) D2 plus (net) subsidies D3 (receivable), plus compensation of employees receivable, D1, plus (net) property income (receivable) D4, less (net) taxes on income and wealth (payable) D5, less (net) social contributions (payable) D61, plus (net) social benefits (receivable) D62, less (net) other transfers (payable) D7.

This adjustment reflects the treatment by the 2008 SNA of privately funded pensions as owned by the household beneficiaries of such plans. It maintains consistency between the income and accumulation accounts in the system. It is not relevant to price and volume measurement, and the reader is referred to the 2008 SNA, Chapter IX, Section A.4, for further details.

15.29 Individual consumption, actual consumption, and household consumption expenditures. The 2008 SNA distinguishes individual from collective goods and services, a distinction equivalent to that between private and public goods in economic theory. It is mainly relevant to services. Individual services are provided to individual households and benefit those particular households, whereas collective services are provided to the community—for example, public order, administration, security, and defense. Many individual services such as education, health, housing, and transportation may be financed and paid for by government or nonprofit institutions and provided free or at a nominal price to individual households. A large part of government consumption expenditure is not on public goods but on goods or services supplied to individual households. These individual consumption expenditures by governments and NPISHs are described as social transfers in kind in the 2008 SNA.

Industry/Activity Coverage of the Producer Price Index Output Value Aggregate

The principal economic activities of the International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4, are

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These are characteristic of the activities identified in most national industrial classifications. In assembling data on the supply and use flows in the economy, a detailed industry production account such as that in Table 15.3 is effectively constructed for each type of activity in the economy. The major activity categories are shown in the ISIC list above. (More is said about the comprehensive presentation of supply and use for the total economy later in Section B.1.3.) With the product output and expenditure detail, Table 15.3 shows more explicitly the typical goods and services coverage of the producer price index (PPI) within the output aggregate P1 of the production account for each industry. In most countries, PPIs cover goods-producing industries, such as the “mining and manufacturing” activities B and C and sometimes also agriculture, forestry, and fishing (A) and construction (F). Most PPIs also cover the “industrial” service activities electricity, gas, steam, and air conditioning supply (D); water supply and sewerage, waste management, and remediation activities (E); transportation and storage (H); and information and communication (J). In principle, the PPI should cover the market output of all activities, and a number of countries are working on rounding out PPI coverage of other service-producing activities beyond transportation and utilities.

15.30 Household consumption can have three distinct meanings. First, it can mean the total set of individual consumption goods and services acquired by households, including those received as social transfers in kind. Second, it can mean the subset that households actually pay for themselves. To distinguish between these two sets, the 2008 SNA describes the first as the actual final consumption of households and the second as household final consumption expenditures. A third possible interpretation of household consumption is the actual physical process of consuming the goods and services. It is this process from which utility is derived and that determines households’ standard of living. The process of consuming or using the goods or services can take place some time after the goods or services are acquired, because most consumer goods can be stored. The distinction between acquisition and use is most pronounced in the case of consumer durables that may be used over a long time. The treatment of durables is discussed further in Box 15.3.

15.31 The existence of social transfers in kind is not recognized in CPIs, although one should take account of them, especially when considering changes in the cost of living. Moreover, governments may start to charge for services that previously were provided free, a practice that has become increasingly common in many countries. The goods and services provided free as social transfers could, in principle, be regarded also as being part of household consumption expenditures but having a zero price. The shift from a zero to positive price is then a price increase that could, at least in principle, be captured by a CPI.

15.32 Monetary and imputed expenditures. Not all household expenditures are monetary. A monetary expenditure is one in which the counterpart to the good or service acquired is the creation of some kind of financial liability. This liability may be immediately extinguished by a cash payment, but many monetary expenditures are made on credit. Household consumption expenditures also include certain imputed expenditures on goods or services that households produce for themselves. These are treated as expenditures because households incur the costs of producing them (in contrast to social transfers in kind, which are paid for by government or nonprofit institutions).

15.33 The imputed household expenditures recognized in the 2008 SNA include all of those on goods that households produce for themselves (mainly agricultural goods in practice) but exclude all household services produced for own consumption except for housing services produced by owner occupiers. The imputed prices at which the included goods and services are valued are their estimated prices on the market. In the case of housing services, these are imputed market rentals. In practice, most countries follow the 2008 SNA by including owner-occupied housing in the CPI. Some countries include other imputed expenditures, such as for vegetables, fruit, dairy, or meat products produced for own consumption.

The Treatment of Housing and Consumer Durables in the 2008 SNA and CPIs

Dwellings are fixed assets. Purchases of dwellings by households therefore constitute household gross fixed capital formation and are not part of household consumption. They cannot enter into a price index for household consumption. Fixed assets are used for purposes of production, not consumption. Dwellings therefore have to be treated as fixed assets that are used by their owners to produce housing services. The 2008 SNA actually sets up a production account in which this production is recorded. The services are consumed by the owners. The expenditures on the services are imputed, the services being valued by the estimated rentals payable on the market for equivalent accommodation. The rentals have to cover both the depreciation on the dwellings and the associated interest charges or capital costs.

The existence of these imputed expenditures on owner-occupied housing services has always been recognized in national accounts, and most countries also have included them in their consumer price indices (CPIs), even though other imputed expenditures are not included.

Consumer durables, such as automobiles, cookers, and freezers, also are assets used by their owners over long periods of time. In principle, they could be treated in the same way as dwellings and be reclassified as fixed assets that produce flows of services consumed by their owners. For certain analytic purposes, it may be desirable to treat them this way. However, to do so in the 2008 SNA would not simply be a matter of estimating the market rentals that would be payable for hiring the assets. It also would be necessary to set up production accounts in which the durables are used as fixed assets. This has traditionally been regarded as too difficult and artificial. There also are objections to extending further the range of imputed flows included in the 2008 SNA and GDP. In practice, therefore, expenditures on durables are classified in the 2008 SNA as consumption expenditures and not as gross fixed capital formation, a practice carried over into CPIs.

15.34 A hierarchy of household consumption aggregates. The following hierarchy of household consumption aggregates that are relevant to CPIs may be distinguished in the 2008 SNA. It is worth noting that all household consumption expenditures are individual expenditures, by definition.

P41 Actual individual consumption, of which

  • D6 Social transfers in kind, comprising individual consumption expenditure P31 of general government S13 and NPISHs S15.

  • P31 Individual consumption expenditure of households S14, of which

    • P311 Monetary consumption expenditure;

    • P312 Imputed expenditure on owner-occupied housing services;

    • P313 Financial Intermediation Services Implicitly Measured (FISIM);

    • P314 Other individual consumption expenditure:

      • Expenditures on nonhousing production for own consumption;

      • Expenditures on goods and services received by employees as income in-kind.

15.35 The codes P311, P312, P313, and P314 do not exist in the 2008 SNA but are introduced for convenience here. These four subcategories of household consumption expenditures are separately specified in Tables 15.4, 15.5, and 15.6. As already noted, D6 and P314 are usually excluded from the calculation of CPIs.

15.36 It is worth noting that the treatment of financial services in the 2008 SNA would imply an augmented treatment of financial services consumption expenditures to include expenditures on bank services not separately distinguished from interest charge, as well as the explicit expenditures on service charges charged directly. This is indicated in the footnote to the CPC 7 item in Table 15.5.

Table 15.5.

Use of Income Account with Product Detail for Institutional Units and Sectors

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Note: Left columns show detail of far right column. 2008 SNA items in bold refer to flows in goods and services. Sector titles in italics indicate whether the column appears in the use of income account for that sector.

In addition to the real estate, rental, and leasing services of homeowners, the 2008 SNA treats financial services consumption expenditure as the sum of measured and imputed components. Measured expenditures comprise explicit service charges levied by financial institutions for deposit, loan, advisory services, and the like, whereas imputed expenditures reflect the income forgone because the household does not lend (keep deposits with a financial institution) or borrow at a reference rate—see Chapter 11. In principle, these imputed expenditures, as well as those for other imputed consumption, are of the same market-equivalent valued type as for owner-occupied housing services and could be covered in the consumer price index.

Table 15.6.

Use of Income Account with Product Detail for the Total Economy

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Note: Left columns show detail of far right column. 2008 SNA items in bold refer to flows in goods and services.

See also Table 15.7, Capital Account.

Table 15.7.

Capital Account

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Note: 2008 SNA items in bold refer to flows of goods and services.

15.37 Product detail in the use of income account. As with the production accounts of establishments owned by institutional units, the product detail of goods and services consumption can be expanded in the use of income account according to the type of product consumed. To maintain the integration of the system of price and volume statistics on consumption with those that have just been covered on production, products would be classified according to the same system as in the production account. Table 15.5 shows the major categories of the CPC, version 2.0, within the components of final consumption expenditure.12

15.38 The expenditure aggregate of CPI in the use of income account. The detailed use of income accounts for institutional sectors can be assembled into a consolidated framework by choosing columns from Table 15.5 for each sector and displaying them together as in Table 15.6. Table 15.6 shows an economy-wide presentation of final consumption and saving. It also shows that total economy individual consumption comprises the individual consumption entries (P31) of the household, NPISH, and general government sector use of income accounts. Table 15.6 separately shows the final collective consumption of government (P32) and consolidates the disposable income (B6g) of all three. The account in Table 15.6 has been arranged specifically to show the consumption coverage of the typical CPI, which comprises the first and second columns.

B.1.3.4 Capital formation

15.39 Capital formation comprises the accumulation of fixed tangible and intangible assets, such as equipment, structures, and software; changes in inventories and works in progress; and acquisitions less disposals of valuables, such as works of art. These items are accounted for in the 2008 SNA capital account, which appears essentially as in Table 15.7 for each institutional unit.

15.40 B9g Net lending (+)/net borrowing (–) is the balancing item of the capital account. It makes the uses on the left, comprising net acquisitions of stocks of various tangible and intangible items, add up to the resources on the right, comprising the sources of income financing them. From the section on institutional units and establishments, it would be easy to conclude that the smallest economic unit to which the capital account can apply is the institutional unit. It was asserted earlier that only institutional units maintain balance sheets and can monitor stock variables that are the focus of this account. However, the physical capital assets whose changes are tracked in the capital account can and should be compiled, if possible, at the establishment or LKAU level to allow production of data on capital formation by industry. Such data are particularly useful for productivity analysis, even though complete capital accounts cannot be compiled at the establishment level. As with the other goods-and-services-related accounts in the 2008 SNA, the capital account’s goods and services items, designated by the codes P5 with extensions, can be exploded by product type.13 The account, therefore, can be rearranged to show this goods and services detail as in Table 15.8, which, as for Table 15.7, may pertain to an institutional unit, an institutional sector aggregate, or the total economy.

Table 15.8.

Capital Account with Product Detail

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Note: 2008 SNA items in bold refer to flows of goods and services.
B.1.3.5 External trade
B. The external account of goods and services: The nonresident’s view of exports and imports

15.41 The external account of goods and services is shown in Table 15.9. It contains the transactions of nonresident institutional units sector—S2 rest of the world—with the five types of resident units taken together. The external goods and services account is generally taken from the balance of payments, which uses adjusted merchandise trade information from the customs records for goods on P61 and P71, and assembles services data on P62 and P72 from various sources. Note, however that the 2008 SNA differs from the IMF’s Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) in compiling the external accounts from the nonresident’s point of view rather than the resident’s point of view: For a given cross-border transaction, a BPM6 resident’s goods and services credit (export) is a 2008 SNA nonresident’s use (export) and a BPM6 resident’s debit (import) is a 2008 SNA nonresident’s resource (import). As with the other accounts, the external goods and services account can be enlarged to show product detail, as in Table 15.10.

Table 15.9.

External Account of Goods and Services

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Note: All resident institutional units S1.nnnn with nonresident institutional units S.2. 2008 SNA goods and services items shown in bold.
Table 15.10.

External Account of Goods and Services with Product Detail

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Note: All resident institutional units S1 with nonresident institutional units S.2; 2008 SNA goods and services items shown in bold.

Construction services only.

B. External trade as a component of output, intermediate and final consumption, and capital formation: The resident’s view of exports and imports

15.42 Besides the direct contribution of imports to total supply and exports to total uses, users of national accounts statistics are interested in knowing the contribution of exports and imports to developments in, respectively, the output component of total supply and the part of total uses comprising intermediate consumption, final consumption, and capital formation (excluding from final uses, by implication, exports). The valuation of these main supply and use aggregates follows basic prices for domestic suppliers’ and purchasers’ prices for domestic users in the accounts where these aggregates appear. The affected accounts are the production account for output and intermediate consumption, the use of income account for consumption, and the capital account for capital formation. Thus, as noted in Section B., the export and import subcomponents of these aggregates follow a resident supplier-user orientation coincident with that of the BPM6. Exports are then valued at basic prices as a subcomponent of output in the production account and of disposals of fixed capital, inventories, and valuables in the capital account.

15.43 Consider now the uses of goods at purchasers’ prices in the international trade context of this Manual. When taking the resident’s view of imports as an intermediate or final use of goods and services, it is necessary to distinctly consider the import status of separately invoiced items as well as the distribution margins in the same purchase transaction. These separately invoiced “subtransactions” for goods, transport services, insurance services, distribution services, and the like must be classified as imported or domestically supplied to fully account for the contribution imports make to a given goods and services flow for the purchasers’ values of intermediate uses by product and industrial activity and of final uses by product.

15.44 Although codes for the resident’s view of export and import aggregates do not exist in the 2008 SNA, this Manual creates them to clarify the role of external trade in the goods and services accounts. These created codes are shown below in bold to distinguish them from the 2008 SNA codes.

P1 Output [production account]

  • P11 Market output

    • P11D Market output for domestic users

    • P11X Exported market output

P12 Output for own final use

P13 Nonmarket output

  • P13D Nonmarket output for domestic users

  • P13X Exported nonmarket output

P2 Intermediate consumption [production account]

  • P2D Intermediate consumption from domestic suppliers

  • P2M Imported intermediate consumption

P3 Final consumption [use of income account]

  • P3D Final consumption from domestic suppliers

  • P3M Imported final consumption

P5 Capital formation [capital account]

  • P51n Net fixed capital formation

  • P51g Gross fixed capital formation

    • P511 Acquisitions less disposals of fixed assets

      • P5111 Acquisitions of new fixed assets

        • P5111D Acquisitions of new fixed assets from domestic suppliers

        • P5111M Imports of new (transportable) fixed assets

      • P5112 Acquisitions of existing fixed assets

        • P5112D Acquisitions of existing fixed assets from domestic suppliers

        • P5112M Imports of existing (transportable) fixed assets

      • P5113 Disposals of existing fixed assets

        • P5113D Domestic disposals of existing fixed assets

        • P5113X Exports of existing (transportable) fixed assets

    • P512 Costs of ownership transfer on nonproduced assets

P52 Changes in inventories

  • P52AD Additions to inventories from domestic suppliers

  • P52AM Imports of additions to inventories

  • P52WD Withdrawals from inventories to domestic users

  • P52WX Exports of withdrawals from inventories

P53 Acquisitions less disposals of valuables

  • P53AD Acquisitions of valuables from domestic suppliers

  • P53AM Imports of valuables

  • P53WD Disposals of valuables to domestic users

  • P53WX Exports of valuables

15.45 This breakdown of exports and imports from the resident’s point of view provides a road map to developing economic index numbers from the resident’s view for these aggregates in Chapter 18. To illustrate the main principles of economic index numbers in the external trade context, that chapter deals only with exports as a subaggregate of output P1 (P11X + P13X) and imports as a subaggregate of intermediate consumption P2 (P2M). The economic index for imports in final consumption (P3M) flows from household theory (see the Consumer Price Index Manual (ILO and others, 2004a), Chapter 17), augmented by a utility theory of government consumption. Economic index numbers for the fixed capital and inventory items are not yet well developed. Consequently, neither are their export (P5113X + P52WX + P53WX) and import (P5111M + P5112M + P52AM + P53AM) subindices. Although it is not dealt with in this Manual, economic index numbers of exports P6 and imports P7 from the nonresident view are the mirror image of economic index numbers for exports and import from the resident view. The economic price index number for exports P6 is the rest of the world import price index (at rest of world purchasers’ values) and for imports P7 is the rest of the world export price index (at rest of world basic values).

B.1.3.6 The Supply and Use Table

15.46 The SUT arrays the industries side by side first for market producers, then for own account producers, and then for other nonmarket producers under Resources and Uses. A SUT is shown in Table 15.11. It arrays various accounts relevant to monitoring developments in production and consumption within a country according to the supply of goods and services (with reference to the 2008 SNA codes labeling the regions of Table 15.11)

Table 15.11.

The Supply and Use Table (SUT)

Note: Production account: double outlines and no fill; use of income account: single outlines and no fill; capital account: diagonal fill; external account of goods and services: vertical fill.1The sum of items in this column is zero. It appears in the SUT but does not appear in any 2008 SNA account. Included in this adjustment are transportation, insurance, and distribution charges on goods within the geographical boundaries of the national economy only. This column disappears if uses are recorded unbundled in producers’ prices.2Taxes and subsidies on products are shown in the 2008 SNA. Allocation of primary income account for the general government institutional sector S.13, which derives B.5g Balance of primary incomes as the balancing item (2008 SNA, Annex V, Table A.V.5). B.5g is the sum of B.2g operating surplus, D2 taxes on production and imports, less D3 subsidies, plus D4 property income (net). This account is the source of data for construction of this column in the SUT when exploded to show product detail for the items D21 and D31, taxes and subsidies on products.3As noted elsewhere, the 2008 SNA values goods imports c.i.f. at the product level of detail but f.o.b. in total. Thus, the 2008 SNA presentation of goods imports in the supply matrix is the sum of PP8 imports f.o.b. and the c.i.f./f.o.b. adjustment on goods imports. To simplify the presentation of this diagram of the SUT and clarify the nature of the negative adjustment to services, assume that insurance and freight provided on imports can be compiled by product, and thus imports f.o.b. can be compiled by product. Insurance and freight provided on imports by residents already are included in the insurance and transportation rows of the P1 matrix.4The sum of items in this column is zero. It appears in the SUT but does not appear in any 2008 SNA account.5Insurance and freight on imports of goods by product provided by both residents and nonresidents.6Including insurance and freight on imports provided by nonresidents. Insurance and freight provided on imports by residents are included in the insurance and transportation rows of the P1 matrix.
  • From resident establishments (arranged in industries) in the form of domestic output (P1), given by Y in equations (15.1) and (15.2);

  • From the rest of the world as imports (P7), given by M in equations (15.1) and (15.2);

  • Adjusted for trade and transport margins14 and taxes less subsidies on products (D21 through D31), given by T in equations (15.1 and 15.2);

and the uses of goods and services

  • For current inputs into production by resident producers (arranged in industries) in the form of intermediate consumption (P2), given by Z in equations (15.1) and (15.2);

  • For final domestic consumption, including individual consumption by resident households, resident NPISHs, and the government (P31), and collective consumption by the government (P32), given by, respectively, C and G in equations (15.1) and (15.2);

  • Capital formation by resident enterprises (P5) (comprising fixed capital formation (P51g), inventory change (P52), and acquisitions less disposals of valuables (P53)), given by I in equations (15.1) and (15.2); and

  • For export (P6) and use by the rest of the world, given by X in equations (15.1) and (15.2).

15.47 The aggregates P6 (exports) and P7 (imports) describe flows and incorporate valuation principles consistent with the view nonresidents take of these flows, namely, that exports are a use by the rest of the world of domestically supplied goods and services, and imports are a supply by the rest of the world to domestic users. Exports thus are valued at the rest of the world’s purchasers’ prices and imports at the rest of the world’s basic prices, as noted above in Section B.

15.48 To reflect the resident view of exports discussed in Section B., the supply (output) matrix P1 of the SUT would be “delaminated” element by element into flows to domestic destinations and flows to rest of world destinations (exports), all at domestic basic prices. For the resident view of imports, the intermediate uses matrix P2 and the final uses matrices P3 and P5 also would be “delaminated” element by element into flows from domestic sources and flows from rest of the world sources (imports), all at domestic purchasers’ prices. Further, for the “goods” product rows of the uses matrix, the imports layer of this delamination would have to account in each product-industry cell for (1) the portion of “goods” imported, (2) the imported portion of separately invoiced transportation services used in moving those goods,15 (3) the portion of distribution services applied to those goods that was supplied by nonresident producers,16 and (4) the portion of taxes less subsidies on products comprising import taxes levied by the government of the economic territory. The domestic/import source delamination of the “services” rows of the above uses matrices at purchasers’ prices would need to account only for components (3) and (4), where (3) would comprise the service product transacted rather than a distributive service associated with a transaction in a good.

15.49 There are transportation, distribution, and other services entering into trade in their own right, without being attached to a goods transaction (change of ownership). The 2008 SNA and the BPM6 consider the specific case of nonresident distributors or “merchants” who accept goods on consignment—that is, goods intended for sale but not actually sold at the time they cross the frontier—from residents of an economic territory for subsequent resale. The services of “merchants” are imports to the economic territory where the owners of the “merchanted” goods reside. Exports of the goods the nonresident merchant is handling for the resident owner are not recognized until the merchant actually sells the goods and change of ownership occurs. At that time, exports of goods are equal to the portion of the sale proceeds transferred to the former owner, and imports of distributive services are equal to the merchant’s gross margin on the sale. These exports and imports are recorded for the economic territory where the first mentioned owner of the goods resides. The 2008 SNA and BPM6 also recognize more general “goods for processing” arrangements that involve movement of goods without change of ownership between a resident institutional unit and a unit in the rest of the world, processing of those goods, and subsequent return of the processed product to the owner. The result of an international arrangement of this type is an import of processing services to the economic territory but no export or import of goods, because no change of ownership has occurred. On the other hand, transportation related to merchanted or processed goods is recorded when the transport services are provided to the merchant or processor, which generally differs from the date of the change of ownership (sale) of the goods. These transportation services would be recognized as international transactions for transport services in the trade statistics without associated goods transactions.

15.50 The relationship between a resident’s view and nonresident’s view of exports thus is:

  • P6 Exports [nonresident’s view, uses at purchasers’ prices]

  • – Trade and invoiced transport margin adjustment for exports

  • – Taxes less subsidies on exported products = P11X Exports of market output

  • + P13X Exports of nonmarket output

  • + P5113X Exports of existing (transportable) fixed assets

  • + P52WX Exports of withdrawals from inventories

  • + P53WX Exports of valuables

  • = Exports [resident’s view, supply at basic prices].

The “Trade and invoiced transport margin adjustment for exports” merely reallocates domestic trade and transport margins on goods destined for export between goods and services. It is, in the aggregate, equal to zero, adding margins for domestically produced distribution and invoiced transport services to exports at basic prices and subtracting the same from the specific lines for domestically produced distribution and invoiced transport services. Thus, in the aggregate, the difference between the nonresident’s and resident’s view of exports is the valuation wedge introduced by taxes less subsidies on exported products.

15.51 The relationship between resident’s view and nonresident’s view of imports thus is:

  • P7 Imports [nonresident’s view, supply at basic prices]

  • + Trade and invoiced transport margin adjustment for imports

  • + Taxes less subsidies on imported products

  • = P2M Imported intermediate consumption

  • + P3M Imported final consumption

  • + P5111M Imported new (transportable) fixed assets

  • + P5112M Imported existing (transportable) fixed assets

  • + P52AM Imported additions to inventories

  • + P53AM Imported valuables

  • = Imports [resident’s view, uses at purchaser’s prices].

The “Trade and invoiced transport margin adjustment for imports” merely reallocates international transport margins on imported goods between goods and services. It is, in the aggregate, equal to zero, subtracting margins for invoiced transport services from imports at purchasers’ prices and adding the same to the specific lines for either imported or domestically produced transport services. Thus, in the aggregate, the difference between the nonresident’s and resident’s view of imports is the valuation wedge introduced by the taxes less subsidies on imported products.

15.52 A full international accounting of these tax wedges would take account of taxes less subsidies on products imposed by governments in the rest of the world as well. On a product-by-product basis, this might be determined by looking at the exports and imports accounts of a country as well as the imports and exports accounts of its trading partners, assuming all are compiled with separate accounting for taxes less subsidies on internationally traded products. Such data would support, for example, trade restrictiveness analyses assessing the degree to which import tariffs and export subsidies affect the mix and volume of international trade.

15.53 The SUT is a matrix of flows of goods and services designed to highlight the relationship between the production and consumption of institutional units and institutional sectors. For example, households may undertake production in unincorporated enterprises whose activity appears in the production for own final use part of the SUT, but also may consume goods and services, as represented in “individual consumption.” The current production transactions of the establishments of all institutional units are grouped together and summarized in one part of the SUT, and the remaining transactions are summarized and organized in another part. The SUT deals principally with flows of transactions in goods and services. Associated with these monetary flows are price and volume components. It is of central interest in monitoring the economy with national accounts statistics to be able to assess the price and volume components of flows of goods and services exchanged for money or credit in market transactions in the SUT. Movements in the price components are of use for estimating volume changes, terms of trade changes and effects, and the transmission of inflation, and assessing changes in the purchasing power of incomes, as well as in influencing the rate of general price change through monetary policy. Finally, price movements in the various national accounts aggregates are used in private sector decision making and in the escalation of contracts. Movements in the price components of national accounts aggregates are, as discussed at the beginning of this section, measured by price indices.

B.1.3.7 Supply and use tables in volume terms

15.54 As outlined in Chapter 4, Section 3.2.1, price deflators are applied to value aggregates at a detailed product level. However, this should be undertaken within the framework of SUTs in volume terms to enable the detailed price indices of export and imports to benefit from being meaningfully reconciled with those of output, consumption, and investment to form commodity balances in volume terms. The 2008 SNA advises that SUTs be developed in volume terms at the same time as, and be consistent with, the SUT at current prices. The valuation requirements for nominal value aggregates for exports and imports in SUTs thus carry over to the price indices used as their deflators. Chapter 14 of the 2008 SNA stresses the need for a common valuation for supply and use so that the product rows can balance and thus be useful for reconciliation. For SUTs valued at purchasers’ prices, and the needs of deflators at the product level, Chapter 4, Section B.3.1, outlines how the valuation of the supply of imports is at basic prices with taxes and margins added subsequently to raise it to purchasers’ prices and the value of the use of exports is at purchasers’ prices (2008 SNA, Paragraph 14.75).

15.55 It also follows that to derive SUTs at basic prices it is necessary to lower the use table from purchasers’ to basic prices. 2008 SNA notes that there are arguments for (and against) the use of basic prices, as against purchasers’ prices, for valuing SUTs. The principal argument for a valuation at basic prices is that it facilitates the compilation of SUTs in volume terms, a matter that is of interest to this Manual. The case for deflating the components of a SUT at basic prices17 is that PPIs, used at a detailed level for deflating both output and intermediate consumption, are compiled at basic prices and thus are well suited for deflating the rows of a basic price SUT. Further, a use, such as intermediate consumption of a product valued at purchasers’ prices can be decomposed into that part of its value at basic prices derived from domestic production, that is, derived from imports,18trade margins, transport margins, and taxes and subsidies on products. This decomposition enables separate deflators to be applied to the constituent elements.

15.56 The case against valuing the SUT at basic prices is first, as outlined in 2008 SNA Section D.2, the arduous task of the decomposition of the use table (at purchasers’ prices) into its six constituent components: basic price domestic production, imports, trade margins, transport margins, taxes, and subsidies. Six matrices must be set up to enable the decomposition of each element of the use table. This is a much more resource-intensive task that setting up the six columns on the supply side to raise supply at basic prices to purchasers’ prices. Second, the deflation of margins and taxes is problematic on conceptual as well as practical grounds. Third, while it has been argued that PPIs are usefully available for deflation at basic prices, it is also the case that the CPI is suitable for deflating detailed components of household consumption expenditure at purchasers’ prices.

B.2 XMPIs and other major price series

B.2.1 PPI variants

B.2.1.1 Price indices for intermediate consumption

15.57 In considering total economy and industry intermediate consumption price indices (IPIs), the weights correspond to a column-wise reading of the intermediate consumption part of the SUT’s use matrix. The intermediate consumption matrix derives from the production account in Table 15.3. It is shown in Tables 15.11 and 15.12 as the region labeled P2. Because the various margins on basic prices inherent in prevailing purchasers’ prices may vary from industry to industry, the ideal sources for purchasers’ prices for IPIs would be enterprise surveys. Such surveys are generally burdensome and expensive. Instead, as noted in the discussion on price indices for total supply, the price index of intermediate consumption by industry can be derived from detailed product components of the supply price index (SPI). This index will be acceptably accurate if the variation in the total tax, subsidy, transport, and distribution margin is not too great from industry to industry within product class. For the total economy, the price index of intermediate consumption is obtained as a weighted average of industries’ intermediate input price indices. The weights are the share of each industry’s intermediate consumption in the total intermediate consumption in the economy. As noted in Sections B. and B.1.3.6, the imports subindex of the PPI for intermediate consumption is an important component of the price index for imports from the resident’s view.

Table 15.12.

Location and Coverage of the Major Price Indices in the Supply and Use Table

Note: The effective coverage of the major indices is shown by areas with gray fill. CPI = consumer price index. PPI = producer price index. XPI = export price index.1This column disappears if uses are unbundled and recorded in producers’ prices.2Covering the Individual consumption expenditure P31 of the Household sector S.13 only and excluding consumption of goods produced by households for own final use, with the exception of imputed rental of dwellings of owner occupants.3Covering the finished goods component of Change in inventories (P52).
B.2.1.2 Net output PPIs and value-added deflators

15.58 The PPI has been defined in terms of the total market or market-valued output aggregates of the 2008 SNA, but PPIs sometimes are produced for net output as well as total output. The argument for net output PPIs is that, for a given aggregate of establishments, total output PPIs overweight or “double count” the output of goods used in intermediate consumption within the aggregate. Net output PPIs may be produced for various narrow or broad aggregations of establishments, from detailed industries to the entire population of establishments resident in the economy. The value aggregate of net output PPIs subtracts from total output the value of goods and services used within the aggregate and of the same types as produced for output by establishments in the aggregate. With one exception, net output is not value added, because it does not exclude the intermediate consumption of goods and services used by establishments of the aggregate that are not of the same types as produced for output. The exception is when the aggregate is all resident establishments.

15.59 By implication, the net output PPI for all establishments resident in the economy must be closely related to the value-added price index or deflator discussed in Chapter 18. The value aggregate for the all items net output PPI would be value added (Section B.1) as defined in the 2008 SNA and shown in the production account (Tables 15.1, 15.2, and 15.3). In fact, if the PPI has complete product coverage, including all service products, then net output and value added are the same thing for the total economy.19 They may be the same even at the industry level under an alternative definition of “net output.” See this issue in a stage of processing context in Section B.2.1.3.

15.60 The principal issue in interpreting net output PPIs is the definition of the intermediate consumption prices netted from output to arrive at the net output aggregate. These prices should be defined with a view toward the valuation principle inherent in the value aggregates to which they refer. Recall that output (P1) is valued at basic prices whereas intermediate consumption is valued at purchasers’ prices. Ideally, the net output PPI would be a type of double-deflation price index, similar in principle to the value-added deflator described in Chapter 17 of the PPI Manual (ILO and others, 2004b). In such an index, the prices of the goods and services in intermediate consumption would be defined inclusive of taxes on products and charges for included transportation and distribution services, and exclusive of subsidies on products. The prices of goods and services in output would be defined as exclusive of taxes on products and separately invoiced charges for transportation and distribution, and inclusive of subsidies on products. Net output PPIs generally do not attempt the purchasers’ price valuation of the intermediate consumption of output-type goods and services within the industry aggregate in question. They compromise the concept of the net output index, should there be a change in any component of the purchasers’ prices of intermediate consumption goods and services other than the underlying basic prices of products. See Section B.2.1.3 regarding the scope of intermediate consumption in the net output PPI and its alignment with intermediate consumption in value added.

B.2.1.3 Stage of processing PPIs

15.61 Product-based stage of processing indices. The simplest method of forming a set of stage of processing PPIs is first to determine an ordering of products a priori, on the basis of judgment, from primary to finished goods. The second step is to produce PPIs for goods grouped by this intrinsic stage of processing classification. Such indices are referred to as productor commodity-based stage of processing indices. They may employ the so-called “end-use” product classifications associated with the commodity flow methods often used in compiling the national accounts.

15.62 Industry-based stage of processing indices. Industry net output PPIs are associated with industry stage of processing PPIs. They are produced in an effort to measure the contribution of the basic prices of goods and services to the change in value added for the economy. They also provide an analytical tool to measure the transmission of inflation through stages of processing, from primary goods and services to those sold for final uses. Industry stage of processing PPIs involve a sorting of the product rows and industry columns of the use matrix so the matrix is roughly triangular. In other words, any given product row in the stage of processing-sorted use matrix comprises all zero uses to the left of a particular industry sorted by industry stage of processing. It would have mostly positive uses for that industry and other industries to the right of (and thus at higher stages of processing relative to) that industry. Further, within any given industry column, products earlier in the stage of processing sort (above the product in question in the industry column) would tend to have positive uses. There would be zero use of products later in the stage of processing sort (below the product in question) in the industry column. Stages of processing are meaningful in this context for goods, but triangularizing the use matrix tends to classify business services in the primary production category because all industries use them in varying degrees. In this definition of stage of processing, they are primary output because they are produced mainly with labor and capital primary inputs, rather than the outputs of other industries.

15.63 The PPIs constructed for such stage of processing-sorted use matrices are compiled as net output indices, exclusive of uses of output-type goods and services within the industry aggregate in question. Hence, net output PPIs generally are associated with industry stage of processing PPIs. For most aggregates, total economy industry net output is equivalent to value added. Unfortunately, when the coverage of services is incomplete, output and intermediate consumption prices cannot be fully characterized except for goods, the largest industry for which the net output aggregation is feasible. Here only the price index for the net output of goods can be characterized, which differs from the value added of the goods industry because intermediate consumption of services is still not netted from the net output of goods.

15.64 There is a second interpretation of stage of processing PPIs. In this view, they are conceptually the same as value-added price indices or deflators for industries that have been sorted by stage of processing according to the above diagonalization process. By implication, a PPI for an industry at a late stage of processing would expressly exclude the price change of primary products from the price change of the tertiary or finished products of the late-stage industry. Again, universal product coverage, including services, is needed for output and intermediate consumption, and many countries are lacking particularly in the coverage of the prices of service products. When there are no service price indices, value-added deflators cannot be computed even for goods-producing industries, because the services component of intermediate consumption is missing.

B.2.2 Relationship of the PPI to other major price indices

15.65 It is instructive at this point to associate the four major, headline price indices compiled by most countries with the component aggregates and matrices of the SUT. The four main price indices and their associated national accounts aggregates and matrices in the SUT are

  • (1) Output of resident producers (P1): Producer Price Index (PPI),20

  • (2) Individual consumption expenditure on goods and services (P31), except consumption from own production but including the imputed rent of owner-occupied dwellings, of the household sector (S13) only: Consumer Price Index,

  • (3) Exports (P6): Export Price Index, and

  • (4) Imports (P7): Import Price Index.

15.66 The location and coverage of these major price indicators as they directly apply to goods and services value aggregates in the national accounts are shown in Table 15.12. Recall that Section A of this chapter characterized a price index as a function of price relatives and weights, noting that, other than the formula for the index itself, the requisite features of the relatives and weights would be determined by the value aggregate. These factors were

  • What items to include in the index,

  • How to determine the item prices,

  • Which transactions that involve these items to include in the index, and

  • From what source to draw the weights used in the selected index formula.

Table 15.13 summarizes these particulars for each of the four major indices based on our survey of the goods and services accounts of the 2008 SNA culminating in the SUT.

Table 15.13.

Definition of Scope, Price Relatives, Coverage, and Weights for Major Price Indices

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B.2.3 CPI versus PPI as a measure of inflation in market transactions

15.67 Central banks take an interest in the major price indices, particularly if they implement an “inflation targeting” monetary policy. The CPI is the most widely available macroeconomic price statistic, and in many countries it may be the only available option for inflation measurement. When available, the PPI ordinarily is produced monthly on a timetable similar to that of the CPI. It is useful, therefore, to compare the two indices as candidates for inflation measurement.

15.68 Both reference aggregates for the CPI (consumption plus capital formation) are important components of total final expenditure and GDP in virtually all countries. Indeed, reference aggregate 2 (consumption plus capital formation) has been promoted by some analysts as a better measure of change in the prices of actual transactions in goods and services than CPIs based on reference aggregate 1 (consumption), which gives substantial weight to the imputed rent of owner-occupied housing. On the other hand, the total value of transactions in goods and services also includes intermediate consumption and acquisitions and disposals of tangible and intangible capital assets, so as an inflation index for total goods and services transactions, the CPI’s coverage is rather limited under either definition 1 or 2. The CPI’s purchasers’ price valuation principle also includes taxes less subsidies on products, which may not be desired in an inflation indicator for underlying price change.

15.69 In contrast, the PPI covers, in principle, total output, which by definition implicitly includes intermediate consumption as well as value added.21 A second desirable feature of the PPI is that it provides some information on the transmission of inflation through the economy by stage of processing. As noted earlier, product-based stage of processing PPIs may be used to provide information on transmission of inflation through the economy from primary products to finished products. If industry value-added indices are compiled, then industry-based stage of processing net output price indices can be used to inform on the transmission of inflation from primary activity to tertiary activity. As noted earlier, the latter indices require price indices for intermediate consumption, which most often are estimated using available information on basic prices, trade and transport margins, and taxes and subsidies on products, rather than from direct surveys, although the latter may be used and are preferable if the survey resources are available.22

B.3 The two variants of export and import price indices in the national accounts and their relationship to other price indices

15.70 The nonresident’s view export and import price indices allow decomposition of the SNA aggregates for exports (P6) and imports (P7) to produce volume estimates for GDP compiled from the expenditure approach as the sum of consumption, capital formation, and net exports. The resident’s view export and import price indices allow decomposition of the SNA aggregates for output (P1) and intermediate consumption (P2) into domestic and internationally traded components, allowing compilation of the contribution international trade makes to developments in GDP compiled from the production approach as value added equals output less intermediate consumption. It also allows decomposition of gross capital formation (P5) into domestic and internationally supplied components. In combination with the aforementioned contribution of international trade to net output (value added) volume, this decomposition of capital formation additionally allows compilation of statistics on the contributions international trade makes to developments in multifactor productivity.

B.4 Other goods and services price indicators in national accounts

B.4.1 Price indices for total supply

15.71 Consistent with our earlier discussion of the PPI coverage, total market-valued output is the sum of market output (P11) and output for own final use (P12). Total output (P1) is the sum of market-valued output and other nonmarket output (P13). Total supply at basic prices is the sum of output and imports (P7). Markup adjustments at the product level for trade and transport margins on domestic production, insurance and freight on imports, and taxes (D21) less subsidies (D31) on products would be added to total supply at basic prices to produce total supply at purchasers’ prices.

15.72 In decomposing total supply into price and volume components, the total SPI at basic prices can be seen to be a weighted mean of the total output price index (YPI) and the import price index (MPI). The YPI comprises in turn the PPI and an implicit deflator index for other nonmarket output. To obtain the deflator for total supply at purchasers’ prices, the SPI would be multiplied by an index of the total markup for trade, insurance, and transport margins,23 and taxes net of subsidies on products.

15.73 Total SPIs at product levels of detail are useful in compiling and reconciling discrepancies in supply and use tables expressed in volume terms. In addition, SPIs are employed in producing industry price indices for intermediate consumption (P20), which are useful for compiling GDP volume measures from the production approach. Although principally used as a compilation aid and in deflation of value added at basic prices via the double deflation approach (see Section B.4.2), SPIs could also serve as analytical indicators in their own right because of their coverage of all goods and services transactions in the economy relating to production and external trade. As such, they may be useful as indicators for economic policy analysis and evaluation requiring broad transaction coverage, in monetary policy formulation, for example.

B.4.2 Price indices for final uses

15.74 The price indices for final uses comprise deflators for individual consumption (P31), collective consumption (P32), gross fixed capital formation (P51g), change in inventories (P52), acquisitions less disposals of valuables (P53), and exports (P6). Of the major price indices discussed above, the CPI is the principal source of detailed (product-level) information for P31, and the PPI is a significant source of detailed information for P51g and the principal source for the finished goods component of P52. The SPI may be the principal source for the input inventories component of P52 in the absence of a detailed intermediate inputs purchase price survey, and the XPI is the deflator for P6. The SPI can serve, as well, as a source of detailed product information for P32, P51g, and P53. The deflator for total final uses is designated as the final uses price index, or the FPI. It would be computed as a weighted mean (formula to be determined) of the component indices just discussed.

B.4.3 GDP deflator

15.75 As noted above in the discussion of the SPI and the IPI, the GDP price deflator24 can be compiled in two ways, corresponding to the two goods and services methods of compiling GDP: the production approach and the expenditure approach. Recall that the production approach derives from the definition of value added, which is the difference between output (P1) (at basic prices) and intermediate consumption (P2) (at purchasers’ prices). The 2008 SNA recommends the use of double deflation for value added, by which output at basic prices Y is deflated by the all items YPI to obtain output volume, and intermediate purchases are deflated by an intermediate purchases price index to obtain intermediate input volume. Real value added is then computed as the difference between output volume and intermediate input volume.25 This operation is equivalent to deflating value added in current prices with a double-deflation-type price index having a positive weight on the YPI and a negative weight on the IPI (see Chapter 18 of the PPI Manual).26 The total value added at current basic prices divided by real value added obtained via double deflation yields the implicit deflator for value added at basic prices. Finally, the GDP deflator at purchasers’ prices is the value-added price index (at basic prices for output and purchasers’ prices for intermediate input) multiplied by the index of the markup on value added of output taxes less output subsidies on products.

15.76 Alternatively, the final expenditure deflator FPI may be combined with the MPI using a double-deflation-type approach. GDP volume is calculated from expenditure data by deflating imports (P7) by the MPI and subtracting it from the volume of final uses, calculated by deflating final uses by the FPI. The implicit GDP deflator would be the ratio of GDP at current prices with GDP volume so calculated.

B.4.4 Labor services price indices

15.77 The 2008 SNA provides for the income components comprising value added in the generation of income account, shown in Table 15.14. The largest of the income components itemized in this account is compensation of employees (D1), comprising wages and salaries (D11) and employers’ social contributions (D12). D1 represents a value aggregate for a flow of labor services and thus is susceptible to decomposition into price and volume components. Table 15.15 shows the same account exploded by type of labor service (occupation) for an establishment or industry. The price index of labor services or employment cost index (ECI) measures developments in total compensation by occupation within industry. The price of labor services in total compensation terms is of particular interest when compared with the GDP deflator, which indicates the relative purchasing power of labor compensation in terms of production for final consumption. This comparison is useful in assessing cost-push pressures on output prices and as an input into compiling measures of the productivity of labor. A second useful comparison is between the wages and salaries subindex of the ECI27 with the CPI. The ratio of the ECI with the CPI indicates the purchasing power of wages in terms of consumption goods and services, and tracks the material welfare particularly of the employees subsector (S143) of the household institutional subsector (S14) (see Box 15.1).

Table 15.14.

Generation of Income Account for Establishment, Institutional Unit, or Institutional Sector

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Note: 2008 SNA goods and services items shown in bold.

From the production account.

Taxes on production unrelated to products.

Subsidies on production unrelated to products.

Balancing item of the generation of income account.

Table 15.15.

Generation of Income Account for Establishment and Industry with Labor Services (Occupational)1 Detail

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Note: 2008 SNA goods and services items shown in bold.

Shown are major groups of the International Standard Classification of Occupations 1988 (ISCO-88), International Labour Organization.

From the production account.

Balancing item of the generation of income account.

B.5 A framework for a system of price statistics

15.78 To summarize this section’s overview of the main price indicators and the national accounts, Table 15.16 shows the price indices needed for the value aggregates in the national accounts and their relation to the four main price indicators. Indices that are functions of two other indices are shown with the general notation f(I1, I2;w), where f is an index formula, I1 and I2 are price indices (e.g., MPI and YPI), and w is the weight of the second index, with the weight of the first argument in f understood to be 1 - w. For example, if f is the Laspeyres formula then the output price index YPI would be calculated by making the following substitutions: PLs,t=YPIs,tr1s,t=PPIs,t,w1s=1wXs,r2s,t=XPIs,t×Δs,t,w2s=wXs. f also could be chosen as a Paasche formula (with the same substitutions except for change in the time superscript on the weights w1t=1wXtandw2t=wDt), Fisher ideal formula, or other index formula.

Table 15.16.

A Framework for Price Statistics

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P11 = Market output, P12 = Output for own final use, D21 = Taxes on products, and D31 = Subsidies on products.

The four major price indices are shown in bold.

This category comprises public services output provided free of charge or at economically insignificant prices by general government and nonprofit institutions serving households (NPISHs). This output is valued at cost because it has no market comparator. A price index cannot be directly constructed for this aggregate because there are no economically significant prices for other nonmarket output. The implicit deflator for Other nonmarket output (P13) is derived by dividing a directly compiled volume indicator into the value of other nonmarket output.

Unlike the other aggregations of indices that involve the combination of two component indices, it is shown that the FPI is a simultaneous aggregation of six price indices for the components of final uses. Again, f can be any of the indices introduced in this chapter, and with the weight of the first item (here of Individual consumption (P31) determined as one minus the rest of the weights, and the price relatives given by the list of index arguments).

The negative weights of the second index arguments of both of these formulae for GDP is an indication that they represent a double deflation-type price index. See 2008 SNA, Chapter XVI, Section E.

C. International Comparisons of Expenditure on Goods and Services

15.79 The main price statistics discussed thus far trace price developments of goods and services through time. Purchasing power parities (PPPs) compare price levels expressed in a numeraire currency, such as the U.S. dollar or the euro, of detailed goods and services between different countries or geographical areas for a given accounting period. They eliminate the effect of prices when comparing the levels of GDP between two countries or areas. The price relatives in bilateral PPPs comprise the ratios of the local prices, converted to a numeraire currency, of identical goods and services between the two countries or areas. The weights are proportional to the shares of these items in expenditure on GDP, expressed in a numeraire currency, between the two countries or areas. PPPs thus follow the same scope and valuation concepts as GDP in Table 15.16, with the superscript t referring to an area or country rather than month, quarter, or year.

15.80 The sources of price relatives are the same as those for the final uses GDP deflator, and the weights are simply the total final uses, net of imports free on board, by product. To ensure the PPP between area A and area B is the reciprocal of the PPP between B and A, bilateral PPPs need to be computed using symmetric index numbers such as the Fisher or Törnqvist indices.28

15.81 A matrix of bilateral PPPs provides a means of making not only direct bilateral comparisons but also bilateral comparisons between any two areas as the product of a sequence of bilateral PPPs through any set of intervening areas, beginning with the first area and ending with the second. To ensure the consistency of such comparisons (e.g., that a chain beginning with a given area and ending with the same area produces a PPP of unity), bilateral PPPs are adjusted to produce a transitive set of comparisons. The methods for imposing transitivity on a system of bilateral parities compare each area or country’s goods and services prices and shares in GDP to a regional set of reference prices and reference shares.


At the time of writing, the 2008 SNA, in draft stage, was available on the United Nations Statistics Division website at http://unstats.un.org/unsd/sna1993/draftingphase/ChapterList.asp. The 2008 SNA is an updated version of the 1993 SNA (Commission of the European Communities and others, 1993).


As noted in Chapter 3, price indices may be used for various purposes as deflators and general economic indicators. They also may be used in the calculation of escalators for adjusting contract, government pension, and transfer payments. A distinction may be drawn between a price index, which is defined in this chapter as the price component of relative change in a value aggregate, and an escalator, which is one of the uses of a price index. Although an escalator may be chosen as equal to a selected price index, the optimal determination of escalators can lead to more complex functions of price indices than a simple identity relationship.


Some income flows, such as real national income and terms of trade effects, are defined in terms of the purchasing power of the bundle of goods the deflator represents. For example, if the import price index is used as the numeraire deflator to determine terms of trade effects, the magnitude of, say, the gain is determined in terms of changes in the volume of imports that could be purchased from the terms of trade gain.


This chapter uses the standard terminology of the 2008 SNA, in which net accumulation of current output to enable future production is called capital formation rather than investment.


For example, this is determined by physical domicile for households, according to whether the household has been living within the geographic boundaries of a country for a year or more.


The 2008 SNA classification or sectoring of institutional units does not strictly follow the legal status of institutional units, but rather follows their function. Hence, a government-owned nonfinancial enterprise producing output sold at prices substantially covering its costs and for which a balance sheet can be compiled would be classified as a nonfinancial corporation, along with nonfinancial legal corporations. For further details, see 2008 SNA, Chapter IV.


The term receivable is used to indicate that the price refers to an accrued transaction for the seller, and the term payable is used to indicate a transaction that has accrued to the purchaser.


The 2008 SNA distinguishes between taxes on products and other taxes on production. Taxes net of subsidies on products T includes all taxes payable per unit or as a fraction of the value of goods or services transacted. Included in T are excise, sales, and the nonrefundable portion of value-added taxes, duties on imports, and taxes on exports. Subsidies on products include all subsidies receivable per unit or as a fraction of the value of goods or services produced, including in particular subsidies paid on imports and exports. Other taxes on production comprise, for example, taxes on real property and taxes on profits. Other subsidies on production include, for example, regular payments by the government to cover the difference between the costs and revenues of loss-making enterprises. Of total taxes and subsidies on production, only taxes and subsidies on products are considered in defining basic and purchasers’ prices. By implication, there are no taxes payable on products included in either of the aggregates Y or M, whereas subsidies receivable on products are included in these aggregates.


The reader may have noted that transportation, insurance, and distribution margins have somehow disappeared after having been introduced. Whether these services are included with the good or invoiced separately does not affect the total expenditure on goods and services by the purchaser. For the economy as a whole, these transactions cancel out, but when industry activity and product detail are considered, they will have redistributive effects among goods and services products. This point is revisited in the discussion of the SUT below.


As indicated in Table 15.3, the 2008 SNA recommends use of the International Standard Industrial Classification of All Economic Activities (ISIC) for activities or industries, the CPC for domestic products, and the closely related Harmonized Commodity Description and Coding System for exported and imported products. Each country may adapt the international standard to its specific circumstances. If the adaptation amounts to adding further detail, the classification is said to be derived from the international standard. The Nomenclature génerale des Activités économiques dans les Communautés Euro-péennes, or the General Industrial Classification of Economic Activities within the European Communities, is an industrial classification derived from the ISIC. If the adaptation reorganizes the way in which detailed categories are grouped compared with the international standard but provides for a cross-classification at some level of detail, it is said to be related. The North American Industrial Classification System being implemented by Canada, Mexico, and the United States is an industrial classification related to the ISIC. The European Union’s PRODCOM classification of industrial products is derived from its Classification of Products by Activity, which, in turn, is related to the international standard CPC through a cross-classification defined at a high level of product detail.


Final consumption expenditure (P3) is made by institutional units classified in the general government (S13), household (S14), and NPISH (S15) institutional sectors only. Corporations (S11) and (S12) do not have final consumption expenditure, and thus for these units operating surplus (B2g) is equal to saving (B8g) in the use of income account (Table 15.4).


Although the discussion in this chapter maintains a consistent product classification of expenditure across all goods and services accounts, alternative, functional classifications of expenditure have been developed for each institutional sector for specific purposes. The international standard versions of these classifications included in the 2008 SNA comprise the Classification of Individual Consumption by Purpose (COICOP), the Classification of the Purposes of Nonprofit Institutions Serving Households, the Classification of the Functions of Government, and the Classification of the Purposes of Producers. The first column of Tables 15.5 and 15.6 is often compiled from household expenditure survey data, which are collected using functional classifications such as COICOP rather than product classifications. To facilitate constructing the cross-economy framework of the 2008 SNA considered in this chapter, there is a concordance between the CPC and the COICOP.


In addition to the CPC, version 2.0, shown here, the 2008 SNA, Annex V, contains a nonfinancial assets classification identifying the specific tangible, intangible, produced, and nonproduced fixed assets, as well as inventory and valuables items, recognized by the 2008 SNA.


Trade and transport margins do not appear in the standard sequence of accounts in the 2008 SNA because these accounts are not shown with product detail. Although these margins are nonzero for individual products, they sum to zero in total, because the amount added to the domestic supply of goods comes from the domestic supply of distribution, insurance, and transport services. Margins are thus shown in Table 15.11, separately for margins on domestic production and imports (carriage, insurance, and freight (c.i.f.)/free on board (f.o.b.) adjustment), because the SUT displays product detail down the columns. In the aggregate, of course, these adjustments for trade and transport margins on domestic production and the c.i.f./f.o.b. adjustment for imports cancel each other out.


An imported good may be transported from the source country by a domestic carrier or by a foreign carrier. If it is transported by a foreign carrier, this part of the purchasers’ value of the goods used constitutes an import of transportation services.


In the flows for uses of goods, data on the value of imports from, for example, customs sources will include distribution margins for retail and wholesale services supplied by producers in the rest of the world. The values of imports reported by enterprises and their establishments will normally include these imported distribution margins as well. However, there are cases, discussed in the next paragraph, in which these margins are recorded separately in time from the goods flows and should appear in the distribution services product lines of the SUT.


See 2008 SNA, Section D.3, and United Nations (1999b).


2008 SNA, Paragraph 14.132, advises that for the individual product rows of each use at basic prices, imports are separated from domestic production. In some product groups a use may be only domestically produced or only imported and in other cases, in the absence of hard data, informed judgment may have to be used to allocate the respective shares.


Note, however, the equivalence between net output and value-added price indices for the total economy presumes variations in taxes on products, and charges for included (not separately invoiced) transportation and distribution charges on outputs used as inputs are part of the prices of those inputs. The practice of compiling net output PPIs should, but sometimes does not, take this into account.


This chapter has also described net output PPIs, whose associated value aggregate is value added (B1g) for the economy as a whole, as well as for individual industries, under the assumption that all products including services are covered in the PPI. As noted earlier, if product coverage (e.g., of services) is incomplete, then the net output concept deviates from value added because the intermediate consumption of noncovered goods is not subtracted from output.


However, progress in extending the industry coverage of the PPI to cover all output-producing activities, services in particular, has proceeded slowly owing to the technical difficulty of specifying service products and measuring the associated prices.


Although it is possible to produce something similar to industry-based stage of processing indices with information only on basic prices deriving from the output-based PPI in conjunction with a product by industry intermediate consumption matrix, such indices do not capture changes in trade and transportation margins or taxes less subsidies on production. To the extent that such changes are occurring, such indices measure the value-added deflators with an error. However, for inflation measurement, particularly with a view toward an inflation targeting monetary policy, it may be desirable to remove the contribution to change in such industry-based stage of processing indices that arises from changes in taxes net of subsidies on products.


These margins matter only when developing SPIs at purchasers’ prices for individual products and product subaggregates. For all products they cancel out, leaving only taxes less subsidies on products contributing to the total markup on total supply at basic prices.


The terminology “GDP price index” could be used here with no confusion of meaning, but we follow conventional usage as set out in Chapter 18 of the PPI Manual and Section B of Chapter 20 of this Manual. This does not imply that a price index that declines with increases in some prices is in fact not a price index—this Manual considers a price index to be that part of the relative change in a value aggregate that can be attributed to the associated change in prices, whether such a change increases or decreases the aggregate.


See 2008 SNA, Chapter XVI.


In the usual case just described, the value-added deflator is a Paasche index (Chapter 16, equation (16.6)) of the output price index YPIs, t and the intermediate input price index IPIs, t, where the weight on the IPIs, t


As noted in Chapter 16, equation (16.11), the corresponding volume index has the Laspeyres or “constant price” form, which is equivalent to the double deflated real value-added volume measure described in the text divided by base-period value added.


In the ECI, the price of labor services comprises all of the components of compensation of employees, including employers’ social contributions (benefits) as well as wages and salaries. The wages and salaries subindex of the ECI would be another example of a price index adjusted by a markup index. Analogously with the price index for total supply at purchasers’ prices or for GDP by production in Table 15.12, the ECI would be adjusted in this case by a “markdown index” taking off employers’ social contributions.


Note that in the international comparisons case the superscripts s and t of the price and volume decompositions in Section A of this chapter refer to two countries rather than two time periods.