Price and volume measurement in services

Current Eurostat recommendations for NSIs

Paul Konijn, Eurostat – C1 National Accounts

OECD Workshop on Services 15-16 November 2004, Paris Outline

‡ Introduction ‡ General recommendations ‡ Retail trade ‡ Finance and insurance ‡ Telecommunications, software and business services ‡ Developing new services price indices

Paris, 15-16 November 2004 Introduction

‡ December 2001: Eurostat Handbook on Price and Volume Measures in National Accounts ‡ Handbook = culmination of several years of work with EU Member States on all topics related to volume measurement ‡ Starting point: GDP growth rates sometimes difficult to compare due to different methodologies

Paris, 15-16 November 2004 Introduction (cont.)

‡ Handbook is elaboration of ESA95 (and SNA93) and gives detailed guidance on deflation of products ‡ Main issues also laid down in two legal acts (from 1998 and 2002) ‡ Since 2001: implementation of handbook in Member States ‡ All Member States have provided Inventory of sources and methods

Paris, 15-16 November 2004 Notes on productivity measurement

‡ Note: handbook is about national accounts -> focus is on macro picture of the economy ‡ Deflation of inputs equally important (and equally difficult) for productivity analysis!!

Paris, 15-16 November 2004 A/B/C classification

‡ Classification of methods: „ A methods: ideal „ B methods: acceptable alternative „ C methods: unacceptable

‡ Move gradually over time from C to B to A ‡ C methods “outlawed” by 2006 ‡ Generally, input methods are C methods

Paris, 15-16 November 2004 General classification of deflation methods of market output

A method: deflation by appropriate producer price indices (adjusted for quality change) B methods: less appropriate PPIs, CPIs, volume indicators C methods: input methods, secondary indicators, inappropriate price indices

To be applied to specific products first

Paris, 15-16 November 2004 Retail trade

‡ Output in NA = trade margin ‡ A methods „ Margin price indices (adjusted for changes in quality of trade service) „ Deflate sales and purchases separately with appropriate price indices (cf double deflation) ‡ However, generally available price indices do not allow this in practice (CPIs make no adjustment for change in quality of trade services, except for outlet substitution)

Paris, 15-16 November 2004 Retail trade (cont.)

‡ B method „ fixed trade margins in constant prices, equivalent to using volume of sales as indicator for volume of margin -> no quality change taken into account ‡ Has to be applied on detailed product level ‡ C method „ deflation of margin output by sales price index

Paris, 15-16 November 2004 Finance and insurance

‡ Again, indirect measures of output : „ FISIM „ Insurance service charge ‡ No A methods exist, except for part of banking output for which direct charges are paid ‡ B methods for FISIM: „ Detailed output indicators „ Apply base year interest margins (analogous to retail trade) -> no quality changes taken into account

Paris, 15-16 November 2004 Finance and insurance (cont.)

‡ B methods for insurance service charge: „ Detailed output indicators „ Index of “real” provisions

‡ Deflation by index of gross premiums not recommended

Paris, 15-16 November 2004 Telecommunications, software and business services

‡ More proper PPIs urgently required ‡ In some cases CPIs can be used as proxy (eg telecommunications, packaged software (?)) ‡ For standard services (eg some legal or accounting services): „ Actual prices or tariffs (A) „ Volume indicators (B) ‡ For specialised (unique) services: „ “Model” pricing (potentially A) „ Charge-out rates or hourly fees (B)

Paris, 15-16 November 2004 Developing new services price indices

‡ Short-term Statistics Regulation in amendment. Current proposal includes inter alia price indices for: „ Telecommunication services „ Computer services (three-digit level of NACE 72) „ Legal, accounting, market research and business consultancy (together) „ Architectural services and technical testing (together) „ Advertisement, labour recruitment, investigation, cleaning (all separately) ‡ Business-to-business services only ‡ First reference period: Q1 2006

Paris, 15-16 November 2004