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Outline of Corporate Goods Price Index (CGPI, 2000 base)

July 12, 2006
Bank of Japan
Research and Statistics Department

1. Purpose and uses

The CGPI focuses on the prices of goods traded among companies. The main purpose of the index is to investigate price developments that reflect most sensitively the supply and demand conditions of individual goods, with a view to facilitating analyses of macro-economic conditions. The indexes of less-aggregated levels (e.g., Commodity, Commodity class) also have a "deflator" function that transforms nominal output values into real quantities.

2. Structure

The Basic grouping index classifies selected commodities by their attributes. It is composed of the Domestic Corporate Goods Price Index (DCGPI), the Export Price Index (EPI) and the Import Price Index (IPI). In addition to the Basic grouping index, there are Reference indexes which re-classify selected commodities of the Basic grouping index under different criteria for specific purposes, or are compiled by the adjusted sample prices of the Basic grouping index.

3. Classification and weights

Basic grouping index

Domestic Corporate Goods Price Index (DCGPI)

The DCGPI measures the price developments of domestically produced and used goods traded among companies. The weights of the CGPI are based on the value of producers' shipments for domestic demand, which are calculated by subtracting the value of exports (from the 2000 Japan Exports & Imports published by the Ministry of Finance) from the value of total producers' shipments (from the 2000 Census of Manufactures published by the Ministry of Economy, Trade and Industry). For those non-manufacturing products whose producers' shipments value is not available from the Census of Manufactures, other statistics compiled by official organizations and cooperating associations are used as substitutes. The DCGPI is classified into 5 Major groups and further classified into 20 Groups.

Export Price Index (EPI) & Import Price Index (IPI)

The EPI measures the price developments of exports at the Japanese port of exportation and the IPI measures that of imports at the Japanese port of importation. The prices are compiled in terms of both yen and contracted currencies. The weights are calculated from the value of exports and imports obtained from the 2000 Japan Exports & Imports published by the Ministry of Finance, respectively. The EPI and the IPI are classified into 8 Groups.

Reference indexes

Index by Stage of Demand and Use (ISDU)

The "Index by Stage of Demand and Use" re-classifies the Basic grouping index by stage of demand and use. It is used to analyze various price developments, such as how a price change in one stage is transmitted to other stages.

Domestic Corporate Goods Price Index using Chain-weighted Index Formula

The "Domestic Corporate Goods Price Index using Chain-weighted Index Formula" re-calculates the DCGPI using the chain-weighted Laspeyres formula. This index is compiled using updated weights each year, that is, by using the linked indexes, which are re-based every December.

Domestic Corporate Goods Price Index excluding Consumption Tax & Index for Domestic Demand Products excluding Consumption Tax

The "Domestic Corporate Goods Price Index excluding Consumption Tax" is the DCGPI excluding consumption tax. The "Index for Domestic Demand Products excluding Consumption Tax" is the index of Domestic demand products (of the Index by Stage of Demand and Use) excluding consumption tax.

Average index for Domestic corporate goods, Exports and Imports (AIDEI)

The "Average index for Domestic corporate goods, Exports and Imports" is the index weighted average of the DCGPI, EPI, and IPI.

4. Base year for the index and the weight calculation

The base year is 2000 for both the index calculation and the weight calculation.

5. Selection of Commodities

Commodity selection criteria

DCGPI
Selected Commodities are those with transaction values no less than 1/10,000 (24.6 billion yen for the 2000 base DCGPI) of the total transaction value for the index (i.e., the total producers' shipment value of domestic products for the domestic market).
EPI and IPI
Selected Commodities are those with transaction values no less than 5/10,000 (24.0 billion yen and 18.8 billion yen for the 2000 base EPI and IPI, respectively) of the total transaction values for the indexes (i.e., the total export and import values).

Number of selected Commodities

The numbers of selected Commodities are 910 for the DCGPI, 222 for the EPI and 293 for the IPI (including Reference indexes).

6. Sample prices

Sample price specification and surveyed point of time

In conducting price surveys, the foremost consideration is given to the following points: 1) Actual prices most sensitively reflecting the supply and demand conditions of the Commodities should be chosen as sample prices. 2) The price developments of surveyed goods need to be as genuine as possible. They should be free from price changes caused by changes in the commodities' quality or contract conditions. In principle, sample prices are surveyed at the time of contract.

The DCGPI includes the consumption tax. The EPI and the IPI do not include the consumption tax.

Price survey stage

For the price survey stage of the DCGPI, one stage in the distribution process is chosen for each commodity whereby transactions are most active and prices reflect most sensitively the supply and demand conditions. The criteria for price survey stage selection are as follows.

  1. (1) The prices at the stage of shipment from primary wholesalers are chosen as sample prices if the primary wholesalers play a critical role in matching supply and demand for the Commodities using their own inventories as a buffer.
  2. (2) The prices at the stage of shipment from producers are chosen as sample prices if the producers normally conduct transactions with retailers or final users directly. This includes cases where the wholesalers act as intermediaries, but have little influence on price formation.
  3. (3) In cases where the prices of wholesalers and producers seem to equally reflect the supply and demand conditions, the latter are usually chosen as the sample prices.

The percentage of prices surveyed at the production stage in the overall DCGPI is 85% (as of October 25, 2002).
In the EPI, the FOB (free on board) prices at the Japanese port of exportation are surveyed, in principle. In the IPI, the CIF (cost, insurance, and freight) prices at the Japanese port of importation are surveyed, in principle.

Introduction of "averaged prices"

Averaged prices are adopted for commodities whose characteristics are diverse (such as small-batch production of a large variety of products as well as machines normally manufactured on a custom-made basis), and commodities whose transaction prices are diverse (such as consumer goods whose prices are falling because of an increased frequency of special sales and lower price levels at the special sales, and products whose prices are diversifying due to individually negotiated discounts). As it is essential to ensure that the sample prices surveyed are of constant quality in order to adopt averaged prices for the CGPI, specific selection criteria have been established for judging the adoption of the averaged prices.
The percentages of averaged prices are 12% in the DCGPI, and around 2% in both the EPI and the IPI (as of October 25, 2002).

Utilization of "provisional prices"

For certain Commodities, there is a commercial custom called "ex-post pricing" whereby the contract periods extend over several months (such as quarter or half-year) and the shipment prices for the contract period are fixed during or after the contract period. When reasonably accurate "provisional prices" (which are the provisional settlement prices used for these transactions until their final settlement prices are fixed) can be obtained for such Commodities, the indexes are compiled using provisional prices (until final prices are fixed). These provisional price indexes are revised to final price indexes whenever the periodic retroactive revisions of the published indexes are implemented (in April and October each year).

Sample price replacement and quality adjustment method

Sample prices are replaced without delay in cases: 1) when a product whose price is surveyed ceases to be representative in the market, 2) when the transaction conditions change, and 3) when the surveyed company needs to be changed. Upon sample price replacement, the price difference between the new product and the old product is adjusted using a quality adjustment method so that only the genuine price change, and not any price change attributed to changes in quality, is reflected in the price index. The direct comparison method, the production cost method, the overlap method and the hedonic regression method are adopted as quality adjustment methods for the CGPI. The hedonic regression method, which estimates the prices of new products by the regression function of their characteristics, is one of the quality adjustment methods based on econometric analysis. Rises and declines in genuine prices (which are on a quality adjusted basis) are judged by the difference between the ratio of quality changes calculated by the hedonic regression model and the ratio of actual price changes (which includes price changes caused by quality differences) in the new and old products. As IT-related products have briefer commodity cycles and their quality improves faster, along with technological innovations, compared with other products, the hedonic regression method is adopted for the five CGPI IT-related products: servers, personal computers, computer printers, digital cameras and video cameras (as of June 2005).

Foreign exchange rate method for converting contract currency basis sample prices to a yen basis

When sample prices are contracted in foreign currencies, they are converted to a yen basis for the yen-basis index compilation using monthly average spot exchange rates (middle rates *) as quoted by banks to customers in each corresponding month. The yen-basis indexes are calculated every month along with the foreign exchange rate method above mentioned, regardless of whether any transactions are actually implemented for the subject commodities during that month.

  • Up to the December 2004 figures, monthly average spot exchange rates (foreign currency buying rates for exports and selling rates for imports) were adopted.

7. Index formula

The fix-weighted Laspeyres formula, which is the weighted arithmetic mean based on the fixed value-based weights for the base period, is adopted for the index calculation.

  • chart1

The chain-weighted Laspeyres formula, which is the weighted arithmetic mean based on the chained value-based weights, is adopted for the index calculation of the "Domestic Corporate Goods Price Index using Chain-weighted Index Formula." However, to compile the Commodity index from sample prices, which is the first index compilation level (hereafter, the Basic classification level), the geometric mean is used instead of the arithmetic mean.

  • chart2

Upper classification levels: All commodities index compilation from Commodity indexes

  • chart3

Basic classification level: Commodity index compilation from sample prices

  • chart4

8. Publication

The preliminary figures are released on the eighth working day of the following month after the index is compiled. The final figures are released two months after the index is compiled, based on revisions to the preliminary figures.There are some cases in which the number of sample prices for certain Commodities has become less than three and the number of correspondent companies has become less than two. In order to protect these correspondent companies' privacy, the indexes for these Commodities and for other corresponding Commodities in the same Commodity classes will, in principle, be unreleased.

Periodic retroactive revisions of published indexes are implemented twice a year in April and October, when the March and September preliminary figures are released. The published indexes are revised for the past one year in principle. Apart from these periodic retroactive revisions, the CGPI will be revised immediately if a large enough error (such as one resulting in changes at the index level of All commodities) is found in the published indexes.

9. Linked indexes

2000 Base Linked Indexes

The 2000 Base Linked Indexes are available for the Basic grouping index of upper classification levels (e.g., All commodities, Major groups, and Groups). The linked indexes are also available for the Reference indexes of upper classification levels.

Prewar Base Index (PBI)

The Prewar Base Index (which is set with a base period and index level at 1934-1936 average = 1) is compiled by rearranging the "Average index for Domestic corporate goods, Exports and Imports" and the "Index by Stage of Demand and Use" to be consistent with the Prewar Base Index classification (which consists of Basic groupings and Groupings by use).