Tuesday, October 2, 2012
The wholesale price index (WPI) is an indicator designed to measure the changes in the price levels of commodities that flow into the wholesale trade intermediaries. The index is a vital guide in economic analysis and policy formulation, and as basis for price adjustments in business contracts and projects. It is also intended to serve as an additional source of information for comparison in the international front.
II. SCOPE AND COVERAGE
Its geographic coverage extends only to the area of Metro Manila.
The price data covers the wholesale prices of commodities from two levels of bulk distribution, i.e., the wholesaler-to-retailer and the wholesaler-to-producer (end-user).
III. COMPONENTS OF THE 1985-BASED WHOLESALE PRICE
MARKET BASKET. The market basket covers 425 commodities classified according to the Philippine Standard Commodity Classification.
WEIGHTS. The weights used in the computation of the index were derived from the 1985 Input-Output table based on gross output.
BASE YEAR. The base year of the series is 1985.
SAMPLE ESTABLISHMENTS/OUTLETS. These provide the wholesale price data for the commodities in the market basket. Certain criteria were used in the selection of the establishments.
INDEX METHODOLOGY. The formula used in computing the index is the weighted arithmetic mean of the price relatives, a variant of the Laspeyres' formula with fixed base and weights.
IV. CRITERIA FOR SELECTION OF WHOLESALE PRICE OUTLETS
The following criteria were used to determine the wholesale price outlets:
Popularity of an establishment along the line of goods to be priced
Consistency of the stock
Permanency of the outlet
Cooperativeness of the price informant
V. CRITERIA FOR SELECTION OF COMMODITIES IN THE MARKET BASKET
The commodities in the market basket were selected according to the following criteria:
Popularity of the variety of the commodity (implies representativeness with respect to the commodity)
Consistency of supply in the market (sustained availability of supply from the base period to the present)
Relatively high market share of the commodity
VI. PRICE COLLECTION SCHEME
To provide the current price data for the construction of the index, a monthly survey of wholesale prices is conducted. The features of the said survey are:
The Bureau of Agricultural Statistics is tasked to gather price data of agricultural commodities while the National Statistics Office is responsible for the collection of price data of other commodities that are included in the market basket as well as the generation of the wholesale price indexes.
Data collection is done on the first 22 days of the reference month. The review for completeness and accuracy of the price data is done from the 16th to the 30th day of the reference month. At least three price quotations are collected for every commodity listed in the price collection form depending on the variation of the prices among the commodities. Accordingly, more quotations are collected for a commodity with a greater number of differing prices at a time.
a. SUBSTITUTION OF OUTLETS
Regular outlets cannot be changed at will unless it becomes necessary due to closing of business and dropping of commodity which is included in the survey from its stock.
If an item is no longer in the stock of a regular outlet but is available or sold in the next door establishments or in any other outlet, get the price quotation of that item (with the same specification as that of the lost item in the regular outlet) from that establishment and maintain it as a regular outlet for that certain item only.
When the abandonment of an outlet becomes inevitable, as when the establishment stopped its operation or closed shop, it should be substituted properly according to the criteria in determining the wholesale price outlets. Once a substitute outlet has been chosen, canvass this regularly in the succeeding monthly surveys.
b. SUBSTITUTION OF ITEMS
Items may temporarily disappear from the market due to seasonality, late arrivals or hoarding. In other cases, items may have been banned from the market for an undetermined duration. The following procedures should be followed should an item temporarily disappear from the market:
When the demand of a particular item becomes nil causing the retirement of its stock from the market, the last price quotation of the item is carried unchanged until the stock and its price is again available but not to exceed three months.
For items that disappear in the market due to hoarding, late arrival or seasonality, the last available price quotation is also carried unchanged until the item reappears.
Disappearance of the items in the market may be permanent. This can be due to obsolescence which arises from a change in model as inherent characteristics of the item or a shift in the consumer's preference from one product to another.
In the former case, the brand of the product is carried and the price of the new model is accepted as comparable to the old. In the latter case, substitution of the item specifications by the newly preferred product is in order.
If a certain specified item disappeared in a municipality, get an appropriate substitute for that item only in that municipality on the following month. However, the original specifications of that item which is still existing in other sample areas should be maintained.
If no appropriate specifications of an item (refers to brand, material and style of the same or nearly the same quality as that of the disappeared item, unit of measure, packaging, etc.) are available in the regular outlet or in any other outlets within the locality to substitute for the lost item, mark the space provided for its price in the survey form for that area "not available". Use "not available" sparingly.
The greater the number of possible substitutes to choose from, the more difficult the problem in selecting the most appropriate substitute will be. The following are the criteria in selecting the most appropriate commodity specifications:
Representativeness - the substitute item to be chosen must be of the same quality and of the same price level as the lost item.
Significance - the substitute item must be popular with the buying public.
Consistency - there must be a steady supply of the substitute item in the market.
Availability of price quotation - prices of the item selected as a substitute can be taken regularly.
VIII. CONSTRUCTION OF INDEX
In computing the index, the following steps are taken:
a. For each month, the arithmetic average price for each item in the market basket is derived first. This is done by summing all the prices taken divided by the number of sources. Hence, if a certain item has three price quotations, simply get the sum of the three prices and divide it by three.
b. The price relative or index for each commodity is then taken by dividing the computed arithmetic average price by the corresponding average base price, as follows:
- PRi is the price relative or index of the commodity;
PRni is the current average price of the commodity; and
PRoi is the base price of the commodity.
c. The index of the subgroup of the commodities is computed using the following formula:
- PRj is the index of the jth subgroup;
PRij is the price relative of the ith commodity in the jth subgroup; and
N is the number of commodities in the jth subgroup.
d. The index for the next subgroup of commodities is computed by dividing the aggregate of weighted indices of component items in a subgroup by the total of their corresponding weights, as follows:
- PRk is the index of the kth subgroup;
PRjk is the index of the jkth subgroup; and
Wjk is the weight of the jkth subgroup.
The weighted average of these subgroup indexes, in turn, becomes the index of the major commodity group, until finally the weighted average of the major commodity group indexes becomes the overall index.
e. The overall index is computed using the following formula:
- I is the index for all items;
PRn is the index of nth major commodity group; and
Wn is the weight of the major commodity group.
IX. FREQUENCY OF DATA RELEASE
The general WPI is available monthly, 35 days after the reference month while the WPI for construction materials is available 15 days after the reference month.