Price Index for Material Inputs to Construction Industries — Technical Manual

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References

International methodological handbook

This technical manual is prepared by the National Statistics Office of Georgia according to internationally recognised methods and practices and is based on the following handbook:

“Producer Price Index Manual: Theory and Practice”, International Monetary Fund, Washington, 2004.
Responsible organizations: International Labour Organization (ILO), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations Economic Commission for Europe (UNECE), and World Bank.
https://www.imf.org/…

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1. Introduction

1.1 Price index for material inputs to construction industries and its use

The Price Index for Material Inputs to Construction Industries measures the average price level of building materials purchased by construction companies in the reporting period, compared to the reference period.

The index covers buildings and building construction works, constructions and construction works for civil engineering, and specialised construction works. This corresponds to divisions 41, 42 and 43 of the constructions and construction works section (Section F) of the Statistical Classification of Products by Activity (CPA 2008).

The index is used for the following purposes:

The index has an important role in deflating different economic indicators;
The index is used for indexation of contract values and other payments in both the public and private sectors;
The index is an analytical instrument for researchers and representatives of the business sector.

1.2 Coverage of the index and the observable prices

Prices are collected from construction companies operating throughout the country, for building materials purchased by those companies.

The observable price of a material is the value of building material purchased by construction companies for the preparation of the construction site and the building of structures in the specified period.

2

Sampling of organizations and materials

The observable construction organizations are selected based on enterprise statistics data. All large organizations corresponding to divisions 41, 42 and 43 of Section F (CPA 2008) are included, while medium and small organizations are selected by sampling.

After the selection of organizations, they are surveyed in order to determine the characteristics of the materials purchased. For this purpose, selected organizations are sent additional electronic questionnaires, in which they are required to indicate the top four types of building material purchased during the previous year, each material’s share in the total value of all purchased materials, and the total amount spent on materials.

During the material selection process, detailed specifications are determined for each material. Strict adherence to specifications is the most important factor in price registration, ensuring that any monthly price difference recorded is caused solely by a price change and not by a change in material characteristics. Based on the survey data obtained, prices for sampled materials are registered monthly throughout the year.

The sample of organizations is updated annually. If an organization ceases to operate in the reporting period, it is not replaced until the next annual sample update.

3

Price collection fieldworks

During price collection fieldworks, the organization’s representative fills in the questionnaire published on the Geostat website. Fieldworks are conducted from the 1st to the 8th of the month following the reporting period. The questionnaire records the characteristics of the selected building material, its unit of measurement, the prices in the current and previous reporting months, and — in the event of a price change — the reason for that change. The base price for a material is registered at the beginning of the reporting year and remains unchanged throughout the year.

Information on material prices provided by enterprises is confidential and is protected by the “General Administrative Code of Georgia” and Article 28 of the “Law of Georgia on Official Statistics”.

Unless otherwise provided by the legislation of Georgia, legal entities registered in the Register of Entrepreneurial and Non-entrepreneurial (Non-commercial) Legal Entities are obliged, upon a written or electronic request from GeoStat, to provide it with any information available to them in material or electronic form, including confidential information.

4

Validation procedures

Validation procedures for the index are conducted in two stages:

At the first stage, validation takes place simultaneously with the price registration fieldworks. In the event of a price change, the person responsible for filling in the questionnaire is required to explain the reason for the change in a comment field. After the data are submitted to the central office, a responsible employee conducts analysis and logical control of the received information.

At the second stage, the accuracy of prices that deviate significantly from the previous month is verified after the overall index has been calculated.

The index is considered reliable once it has passed both of the above validation stages.

5

Weights

The weight of each individual material in the index represents its share in the total value of all purchased materials. For the weights of reporting period t, data from period t‑2 are used as the weight reference period. Weights are updated annually, based on total expenditure on building materials by sampled enterprises in the t‑2 period. The list of materials included in the index may also change during the annual weight update.

6

Imputation techniques

If no price is recorded for a building material in the reporting period, one of the following two imputation methods is applied:

Method 1 — Group index imputation

For example, if no price is recorded in April for material A, the imputed index for it is calculated using the long-term index for material A in the previous month and the short-term group index for April for the group containing that material. The group index is calculated from the actual price indices of all materials in the group.

Table 1.

Material	Weight	Base price	March price	April price	Ratio (Mar./Dec.)	Ratio (Apr./Dec.)
Material A	0.051	4.55	4.50	—	4.50/4.55≈0.99	1.15*
Material B	0.032	5.20	5.20	5.50	5.20/5.20=1.00	5.50/5.20≈1.06
Material C	0.067	5.00	4.50	5.50	4.50/5.00=0.90	5.50/5.00=1.10

* Imputed index

In April, the imputed index for material A is calculated in the following steps:

Imputed index for material A (April) Group LT index April = 1.06\times[0.032/(0.032+0.067)] + 1.10\times[0.067/(0.032+0.067)] \approx 0.34+0.74 = 1.08 Group LT index March = 1.00\times[0.032/(0.032+0.067)] + 0.90\times[0.067/(0.032+0.067)] \approx 0.32+0.61 = 0.93 Group ST index April = 1.08 / 0.93 \approx 1.16 Imputed LT index for material A = 1.16 \times 0.99 \approx 1.15

Method 2 — Carry-forward

As an exception, if in the reporting month no price is recorded for any material in a CPA group at the 3-digit level, imputation is carried out using the carry-forward method for the materials in that group, in accordance with the CPA 2008 structure.

7

Quality adjustment

If in the reporting period a company has stopped purchasing the observed material but is purchasing another similar material, it is permissible to replace the old material with the new one.

In order to ensure the comparability of registered prices, a quality adjustment method must be applied, for which a conditional base price is calculated using one of the following methods:

Method 1 — Qualitative difference is known

If in the reporting month the replacement material is qualitatively different from the previous month’s material and the monetary value of the qualitative difference is known, the base price for the replacement material is calculated using the previous month’s price and the qualitative difference defined by the person responsible for filling in the questionnaire.

Table 2.

Material	Base price	March price	April price	Qual. difference	Ratio (Apr./Dec.)
Material A	4.55	4.50	—	—	—
Qual. different — Material B	5.86*	—	8.50	1.30	8.50/5.86≈1.45

* Imputed base price

Imputed base price for material B Base price = (4.50 + 1.30) / (4.50 / 4.55) \approx 5.86

Method 2 — Previous month’s price is available

If in the reporting month it is possible to determine the previous month’s price for the replacement material, the base price is calculated using that price and the previous month’s index.

Table 3.

Material	Base price	March price	April price	Ratio (Mar./Dec.)	Ratio (Apr./Dec.)
Material A	4.55	4.50	—	4.50/4.55≈0.99	—
Replacement material B	5.26*	5.20	5.50	—	5.50/5.26≈1.05

* Imputed base price

Imputed base price for material B Base price = 5.20 / (4.50 / 4.55) \approx 5.26

Method 3 — Group index method

If in the reporting period it becomes known that material A will no longer be purchased, and it is impossible to obtain the previous month’s price or the qualitative difference for the replacement material B, the entire difference between the current month’s price of material B and the previous month’s price of material A is treated as a qualitative difference. The imputed base price of the replacement material is then calculated based on the current month’s imputed long-term index and the price of material B.

Table 4.

Product	Weight, %	Base price	March	April	LT index March	LT index April
Material A	0.051	4.55	4.50	—	4.50/4.55≈0.99	—
Replacement material B	0.051	6.09**	—	7.00	—	7.00/6.09≈1.15*
Material C	0.032	5.20	5.20	5.50	5.20/5.20=1.00	5.50/5.20≈1.06
Material D	0.067	5.00	4.50	5.50	4.50/5.00=0.90	5.50/5.00=1.10

* Imputed long-term index ** Imputed base price

Imputed base price for material B (group index method) Group LT index April = 1.06\times[0.032/(0.032+0.067)] + 1.10\times[0.067/(0.032+0.067)] \approx 1.08 Group LT index March = 1.00\times[0.032/(0.032+0.067)] + 0.90\times[0.067/(0.032+0.067)] \approx 0.93 Group ST index April = 1.08 / 0.93 \approx 1.16 Imputed LT index for material A = 1.16 \times 0.99 \approx 1.15 Imputed base price for material B = 7.00 / 1.15 \approx 6.09

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8. Calculation of the index on different levels

8.1 Calculation of the lowest level index

An index calculated for an individual building material purchased by a construction organization represents the lowest level index. Graph #1 shows the structure of the construction section, where the price indices for materials A, B and C are the elementary (lowest level) indices. The lowest level index compared to the price reference period is obtained from the ratio of reporting period (t) and reference period prices.

Lowest level index Iᵢ t/0 = pᵢ t / pᵢ 0 where: i — material purchased by the organization for which a comparable price is registered Iᵢ t/0 — lowest level index for material i in reporting period t, compared to the index reference period pᵢ t — price of material i in period t pᵢ 0 — price of material i in the price reference period

Graph #1. Structure of the price index for material inputs to construction industries

8.2 The index for separate groups and the whole section

The long-term index for the whole section compared to the price reference period is calculated using the following Laspeyres-type formula:

Laspeyres-type aggregate index I t/0 = Σ n i=1 Iᵢ t/0 \times sᵢ b where: Iᵢ t/0 — lowest level long-term index for material i compared to the price reference period sᵢ b = pᵢ b qᵢ b / Σpᵢ b qᵢ b — weight of material i in the weight reference period (share of material i in total material volume), Σsᵢ b =1 pᵢ b — price of material i purchased by the sampled organization in the weight reference period (b) qᵢ b — quantity of material i in the weight reference period (b)

The same formula is used for calculating all upper-level indices. For example, a sub-section index is obtained by weighting the long-term indices of materials within the sub-section, where the sum of those weights equals 1.

The short-term index compared to the previous month is obtained from the ratio of the long-term indices of the reporting and previous periods, each calculated relative to the price reference period.

8.3 Chain index

During the annual update of construction organizations and materials, prices are collected in December for materials in both the old and new samples. This enables chain-linking of indices calculated for two different samples. Chain-linking makes it possible to calculate an index with a long-term reference period regardless of changes in weights.

For example, before December 2016, the overall section index was calculated compared to December 2015 using wᵢ weights. From 2017 onwards, the index is calculated compared to December 2016 using kᵢ weights (see Table 5). X₁ is the chain index for January 2017 on a December 2015 base.

Table 5.

12.2015=100	12.2016=100
12.2016: I^12.16/12.15 = ΣIᵢ^12.16/12.15×wᵢ = 106	12.2016: I^12.16/12.16 = ΣIᵢ^12.16/12.16×kᵢ = 100
X₁	01.2017: I^01.17/12.16 = ΣIᵢ^01.17/12.16×kᵢ = 102

Chain-linking formula 106 / X₁ = 100 / 102 \Rightarrow X₁ = 106 \times 102 / 100 \approx 108 I 12.2016/12.2015 \times I 01.2017/12.2016 = 106 \times 102/100 \approx 108

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9. Data dissemination

The following time series for the price index for material inputs to construction industries are published on the GeoStat website (www.geostat.ge) on a monthly basis:

The index compared to the previous month;
The index compared to the long-term base period (Average of 2010 = 100);
The index compared to the same month of the previous year;
The 12-month average over the previous 12-month average.

The published indices are rounded to four digits and represent final data. Time series data are published on the website along with the corresponding charts.

The data are also available through PC-Axis — a data dissemination software created by Statistics Sweden. It is a comprehensive system that enables users to retrieve statistical information from the GeoStat website in various breakdowns and formats (text, tables, graphs, etc.).

Information on the price index for material inputs to construction industries is also disseminated through an Android mobile application.

Graph #2 represents the stages of index calculation and their periodicity.

Graph #2. Index calculation stages — Annual activities

Monthly activities