Outline of the Services Producer Price Index (SPPI, 2015 base)
Research and Statistics Department
Bank of Japan
Compilation section: Price Statistics Division, Research and Statistics Department
Frequency of compilation: Monthly (Quarterly only for "Wholesale Services Price Index," one of the reference indexes)
Time of release: In principle, the monthly indexes are released on the 18th business day of the month following the reference month (for Quarterly indexes, the 18th business day of the second month after the reference quarter, the preliminary figures for April-June quarter are released on the 18th business day of August for instance).
Method of release: Bank of Japan's website
Commencement of data: January 1985
1. Scope of the Survey
The Services Producer Price Index (SPPI) covers service products that are provided by businesses to other businesses and the central and local governments of Japan.
The number of sample prices is 4,758 (including those in the reference indexes; as of March 2019)
The SPPI generally corresponds to "producer price indexes for services," the global standard. The SPPI does not cover service products provided only to consumers.
2. Overview, Purpose, and Use
The SPPI measures price developments of service products provided to business and government. The Bank compiles the indexes in the SPPI by continuously surveying the prices of service products with constant quality, while setting the index levels equal to 100 for the base period (currently CY2015=100).
The main purpose of the SPPI is to capture developments in supply-demand conditions for service products provided to business and government through the collection of their prices, thereby serving as an economic indicator used for assessing economic conditions and making monetary policy decisions.
Moreover, the SPPI is used as a deflator in calculating real values by removing price factors from nominal values, and also used as a reference indicator when businesses set their prices.
The SPPI covers service products that are provided by businesses to other businesses and central and local governments. In principle, the SPPI surveys producer prices which are recorded at the producer stage. Although service products provided to consumers are beyond the scope of the SPPI, the index covers some service products (such as postal services and telecommunications services) that are mainly targeted at consumers, as long as they are also provided to businesses or government.
The SPPI does not cover the services (1) whose prices are difficult to be surveyed on a continuous basis, and (2) whose characteristics or price developments resemble none of the services selected as items in the index. The services not covered in the 2015 base SPPI include the following: Financial Intermediation Services Indirectly Measured (FISIM); research and development (intra-enterprise); and retail services.
4. Structure, Classification, and Weights
The SPPI is composed of the basic grouping index and the reference indexes.
Basic Grouping Index
The basic grouping index covers service products traded among domestic businesses. In the 2015 base SPPI, "All items" in the basic grouping index is classified into 7 major groups, 24 groups, 60 subgroups, and 146 items. The basic grouping index includes consumption tax, and sample prices contracted in foreign currencies are converted into yen. As a reference series, the Bank also publishes "All items (excluding International transportation)," and "Contract currency basis" which is compiled without converting sample prices contracted in foreign currencies into yen.
The weight assigned to each item is based on the value of domestic transactions among businesses for that item. This transaction value is primarily calculated using the data published by the Ministry of Economy, Trade and Industry in the "2015 Updated Input-Output Tables"; namely, the value of transactions among businesses in service sector (the sum of the values of intermediate demand sector, gross domestic fixed capital formation, and consumption expenditure outside households) excluding the import value. In some weight calculation, other official statistics -- such as the "Economic Census for Business Activity" compiled by the Ministry of Internal Affairs and Communications and the Ministry of Economy, Trade and Industry -- and other various statistics are also employed as source data.
(a) Wholesale Services Price Index (WSPI)
The WSPI covers service products provided by wholesalers through purchase and sales activity of goods (wholesale services). This index includes consumption tax. The index consists of an item "Wholesale trade" -- which presents the price trends of the overall wholesale services, and is broken down into five component indexes. In addition, "All items including Wholesale trade" is compiled in order to capture the price trends of all services to businesses and the government including "Wholesale trade." The weights assigned to the WSPI are calculated based on wholesale margins that represent domestic transaction value.
The WSPI is published quarterly.
(b) Item used for calculating the basic grouping index
The item used for calculating the basic grouping index is a set of component indexes of items in the basic grouping index. "Lease rate," one of the component indexes, reflects the trends of lease rates and is compiled by aggregating the data for services of the subgroup "Leasing" in the basic grouping index (with the exception of services in the item "Car leasing," which do not use the percentage fee method). The component indexes other than "Lease rate" are the breakdowns of the following items by type of customer (private sector or public sector): "Building cleaning services," "Facility management services," and "Security services (except Alarm monitoring services)."
(c) Services Export Price Index (SEPI) and Services Import Price Index (SIPI)
The SEPI covers service products traded among businesses and exported from Japan, while the SIPI covers those imported to Japan. For "Intellectual properties licensing (Yen basis)" in the SEPI, the Bank compiles the following two indexes in breakdown: "Intellectual properties licensing (Transportation equipment) (Yen basis)," and "Intellectual properties licensing (except Transportation equipment) (Yen basis)."
(d) Services Producer Price Index excluding Consumption Tax
The Services Producer Price Index excluding Consumption Tax is compiled using prices excluding the consumption tax for the basic grouping index.
(e) Wholesale Services Price Index excluding Consumption Tax
The Wholesale Services Price Index excluding Consumption Tax is compiled using prices excluding the consumption tax for the WSPI.
5. Base Year for Index and Weight Calculation
The calendar year 2015 is used as the base year for both the indexes and weight calculation.
6. Procedures for Selecting Items
Basic procedures for selecting items are as follows. First, as of the base year 2015, the basic sector classifications in the "2015 Updated Input-Output Tables" whose transaction value is 500 billion yen or more are selected as subgroups. Then, among the service products comprising each subgroup, service products that meet both of the following criteria are selected and classified as items: transaction values can be estimated, and price surveys with constant quality can be conducted on a continuous basis.
7. Sample Prices
Data collection methods of the survey
The price surveys basically survey the providers of selected service products, while in collecting some sample prices, they also survey customers. Moreover, some items incorporate data obtained from statistics compiled by other organizations and third-party databases ("alternative data") in order to improve index accuracy and reduce the respondent burden.
The Bank surveys the prices by sending questionnaires to the reporting companies by mail or online. The Bank collects questionnaires in time for the release of the preliminary figures. If the price data are not collected by the time of the calculation of preliminary figures, they will be reflected in indexes published in the following month or later.
Information collected in the survey
In order to continuously survey the price of service products with constant quality, in addition to the service product price, the Bank acquires information from the respondents on characteristics which may affect the prices, such as the details of the surveyed service products, customers and transaction conditions. The information on the prices and all of these characteristics is collectively referred to as "sample prices."
Selection of sample prices
Even within the same item, price trends may vary by characteristic, such as types of service and customers. In order to secure the index accuracy, the Bank selects sample prices for each item considering this point. Specifically, the Bank identifies the characteristics causing variation in the price trends, and then, in terms of each of these characteristics, adjusts each item's composition of sample prices to match the actual composition of the market.
The Bank reviews the composition of sample prices as appropriate not only in the process of rebasing, but also in the term other than rebasing.
Stage of the supply chain, contract currency
With regard to the stage of the supply chain surveyed -- one of the characteristics of sample prices -- the Bank surveys prices recorded at the producer stage for as many sample prices as possible. The ratio of the sample prices recorded at the producer stage exceeds 95 percent on a weight basis (as of March 2019).
As for contract currency, sample prices contracted in yen are surveyed in yen while those contracted in foreign currencies are surveyed in foreign currencies. For indexes in yen basis, sample prices contracted in foreign currencies are converted into prices in yen, using telegraphic transfer spot exchange rates (monthly average, middle rate).
In order to continuously survey the prices of service products with constant quality, the Bank, in principle, fixes the characteristics affecting the prices and surveys actual transaction prices of service products (specification pricing method). In cases where it is difficult to apply the specification pricing method, -- for example, when surveying the prices of services for which price setting is diverse or of highly individualized services such as custom-made services -- other methods are applied in reference to trading practices in the services.
|Specification pricing method
(Direct use of prices of repeated services)
|Actual transaction prices whose characteristics that determine the quality are fixed.|
|Average price method
(Unit value method)
|Average price where multiple transactions for similar services with different quality in services, transaction conditions, etc. are grouped, within the limits where the condition of constant quality is guaranteed.|
|Model pricing method||Model price assuming hypothetical transaction
Prices of hypothetical transactions assuming certain conditions (details of services, customers, transaction conditions, etc.).
Model price using average percentage change in prices
Prices using average percentage change in prices from previous survey month (quarter) for all transactions.
|Percentage fee method||Prices obtained by multiplying the commission rate (in terms of nominal transaction values, etc.) by the correspondent price index.|
|Time based method||Prices of service products per unit of labor input in cases where the quality of the service product can be assumed to be proportional to the quantity of labor input.|
|Margin pricing method||Prices indirectly measured as the difference between acquisition and selling prices of a given product.|
|List price method||Prices used as standard prices (e.g. quoted price, invoice price, list price) in actual transactions for specified services.|
Treatment of missing prices
If there were no transactions of the sample prices during the reference month (quarter) or there were no responses from the reporting companies by the time of the calculation of indexes, the prices are treated as "missing prices." In principle, missing prices are imputed by the prices in the previous month (quarter). Depending on the characteristics of the sample prices, missing prices may also be imputed by the year-on-year rate of change in the previous month (quarter) of the price or by the month-on-month (quarter-on-quarter) rate of change in other sample prices within the same item. In addition, with respect to products with later-determined prices, missing prices are imputed by, if available, prices that are provisionally set. The imputed prices will be replaced with the actual prices when the price data are obtained afterward.
8. Sample Price Replacement and Quality Adjustment Methods
Sample price replacement
Due mainly to consumer behavior changes and new service launches accompanying technological innovations, the Bank sometimes faces issues in surveying prices, such as the suspension of service provisions and transaction amount decreases in the selected service products. In these cases, the Bank conducts "sample price replacement," through which it changes respondents, surveyed service products, customers and transaction conditions, etc.
In the sample price replacement, the Bank seeks to reflect only "pure price change" to the price indexes, by removing from the indexes the "price change resulting from quality changes" through the quality adjustment methods described below.
However, when ascertaining the "price change resulting from quality change" is difficult, the index is treated as if it was unchanged.
Quality Adjustment Methods
In the case of sample price replacement, the following five quality adjustment methods are principally used: (1) the direct comparison method, (2) the unit price comparison method, (3) the production cost method, (4) the overlap method, and (5) the hedonic regression method.
|Quality adjustment method||Description|
|Direct comparison method||Method which assumes the price difference between an old and new service product as pure price change, by judging that the difference in quality is negligible.|
|Unit price comparison method||Method which assumes the price difference per unit between an old and new service product as pure price change by judging that there are no differences in quality, other than its quantity.|
|Production cost method||Method which specifies the price change resulting from quality change, assuming that the change in quality between an old and new service product corresponds to the change in production cost which is usually estimated by the information from respondents. The remaining part is treated as pure price change.|
|Overlap method||Method which assumes the price difference between an old and new service product as price change resulting from quality change, when both old and new service products are sold simultaneously throughout a period of time under the same conditions, and the relative price between them is stable.|
|Hedonic regression method||Method which quantitatively estimates the price change caused by the quality change from changes in common characteristics between an old and new service product, using the regression equation. If the price difference among service products is considered to result from quality difference measured by the common characteristics of these products, the remaining part of the price change is treated as pure price change.|
9. Index Formula
The fix-weighted Laspeyres formula, which is a weighted arithmetic mean based on fixed value-based weights set in the base period (CY2015), is adopted for the index calculation.
Aggregation method for item indexes
For each sample price, an individual sample price index is calculated by dividing the reported price (current price) by the average price in the base year (base year price). Item indexes are calculated by multiplying this sample price index with each sample price weight (the weighted index of sample price), and then dividing the sum of weighted indexes of all sample prices which belong to each item, by the weight of that item.
Aggregation method for indexes of higher-order classifications
As for higher-order classifications such as All items, major groups, groups and subgroups, indexes are also calculated with the same calculation method as for item indexes; by dividing the sum of weighted index of all the sample prices which belong to each classification, by the weight of that classification.
In principle, preliminary figures of monthly indexes are released on the 18th business day of the month following the reference month. Preliminary figures of quarterly indexes - namely the reference indexes, "the WSPI" - are released on the 18th business day of the second month following the reference quarter. The release date may be brought forward for certain months such as months with few business days. The indexes are released at 8:50 a.m. JST.
Undisclosed Item indexes
The Bank may not disclose the index(es) of item(s) under certain conditions. These conditions include: (1) when respondents face difficulty in the continuous price survey due to a decrease in transactions of the whole item, or (2) when the confidentiality of individual company information is deemed insufficient and it is difficult to obtain respondents' approval for disclosing the index.
For items whose index is not published, in the case of (1), the index of a higher-order classification calculated by other items complements the index. In the case of (2), such an index is not published together with the index of another item which belongs to the same subgroup in principle, but is incorporated into the calculation of indexes of higher-order classifications such as the index of All items.
- Note: In the case of (2), two items are not published because otherwise the index of the unpublished item can be calculated as a residual using both the index of the subgroup to which the unpublished index belongs and the indexes of all other items belonging to the same subgroup.
Revision of indexes
Preliminary figures of the monthly (quarterly) indexes are subject to revision in each of the subsequent three months (a quarter) as additional information becomes available. Scheduled retroactive revisions are implemented in September for monthly indexes (at the time when preliminary figures for August are released),and in November for quarterly indexes (at the time when preliminary figures for July-September quarter are released), and applied in principle to figures released after January of the previous year. In addition to these revisions, unscheduled revisions are conducted when timely revisions are deemed necessary, such as when changes to figures have a significant impact on the index of All items.
11. The 2015 Base Linked Indexes
The 2015 Base Linked Indexes offer a retroactively compiled time series of indexes for the basic grouping index. The Linked Indexes are also compiled for reference indexes "All items" and "All items (excluding International transportation)" in the Services Producer Price Index excluding Consumption Tax.