Raw Materials Price Index (RMPI)

Status:
Active
Frequency:
Monthly
Record number:
2306

The Raw Materials Price Index (RMPI) measures price changes for raw materials purchased by industries in Canada for further processing.

Detailed information for February 2014

Data release - April 1, 2014

Description

The Raw Materials Price Index (RMPI) measures price changes for raw materials purchased by industries in Canada for further processing. As a purchasers' price index, prices include all charges purchasers incur to bring a commodity to the establishment gate. They include transportation charges, net taxes paid, custom duties, as well as subsidies, if applicable.

In 1978 Statistics Canada terminated the General Wholesale Price Index (GWI), which had been produced since 1926. This index, as a whole, had become obsolete as it was no longer showing a clear wholesale level of distribution in the economy. The Industrial Product Price Index (IPPI) covered prices of manufactured goods, but there were now no indexes covering unprocessed materials (other than agricultural products). It became apparent at this time that some new indexes were needed. In addition, there was a growing interest in energy prices, which had previously not been included in the GWI. Therefore, series at aggregate levels were developed to ensure continuity with those in the GWI and the Raw Materials Price Index (RMPI) was introduced, effective January 1981.

The RMPI is produced and published together with the IPPI as it meets many of the same interest and needs. The index provides the movement in prices for a group of major input products into goods produced in Canada. It helps cover the spectrum of price changes in the Canadian economy, and is valuable directly and in relation to the price movements of products derived in part from these materials. In addition, the RMPI series supports the Canadian System of National Accounts (SNA), where it is used in the calculation of real Gross Domestic Product (GDP). Together, these indicators serve as an important indicator of the health of the economy.

As well, like the IPPI series, the RMPI series is of value in analytical studies of price formation and behaviour. It is frequently used in the process of contract escalation, and often serves as a representative input into other price index series.

Reference period:
The time period for which the RMPI equals 100; currently this is the year 2010.
Collection period:
For most products included in the RMPI, the collection process occurs over a three-week period starting during the last week of the reference month.

Subjects

  • Industrial product price indexes
  • Prices and price indexes

Data sources and methodology

Target population

The target population of the RMPI consists of those manufacturing establishments residing and producing in Canada, as identified in the 2010 Annual Survey of Manufactures and Logging (ASML).

The geographical universe for the RMPI is all of Canada, while the commodity universe is all industrial goods manufactured in Canada and the industry universe corresponds to the North American Industry Classification System (NAICS). Finally, the price universe is the purchasers' price, that is, the price should include all charges purchasers incur to bring a commodity to the establishment gate. Transportation charges, net taxes paid, and custom duties are all included, as well as subsidies, if any are paid to the purchaser.

Instrument design

Commodity specialists mostly use Administrative data for raw material price data. Also used to collect raw material data are mail-out questionnaires, which contain technical descriptions or specifications for selected raw materials, originally supplied by the respondent (e.g. Gravel 3/8 inch, round and crushed). In addition to the raw material description, the questionnaire outlines the terms of purchase for which the price applies (e.g. Price per ton to manufacturers in lots of 600 tons, f.o.b. by truckloads).

Sampling

This is a sample survey.

The sampling frame for the RMPI is based on the 2009 ASML. The most common survey unit is the "establishment" which, in Statistics Canada's usage, refers to the smallest unit of an organisation that can provide the basic data required for industry statistics, most commonly an individual plant or factory.

Sampling for any directly surveyed elemental index is usually done by selecting a range of specific price quotations to represent purchases of the commodity as a whole. Usually the individual price quotations are equally weighted within a company, unless there is good data from which to weight individual varieties.

The entire survey sample is usually reviewed in total once every 5 years. In the interim, re-sampling occurs primarily for commodity groups subject to relatively rapid development in product development.

Data sources

Responding to this survey is mandatory.

Data are collected directly from survey respondents, extracted from administrative files and derived from other Statistics Canada surveys and/or other sources.

The prices of most of the raw materials surveyed for the RMPI are collected monthly, usually over a three-week period. In an effort to minimise respondent burden, prices are collected less frequently in those cases where price changes occur normally at other intervals (e.g. quarterly).

In the RMPI, approximately 18% of the data are collected by direct survey, 79% of the data from administrative sources and the remaining 3% from proxy imputation, usually from a similar commodity at the next stage of processing.

The price information collected relates to the month in question. The goal is to obtain the average price for the reference month.

Commodity specialists obtain, from each of the sampled respondents, price observations for each of the raw materials selected. To do this, they discuss with each respondent the raw materials that they purchase, and the different terms of sale under which they purchase them. They then draw up a detailed description of the raw material purchased. The terms of purchase that apply may also be specified for each price quotation. In most cases, the specific quotation chosen pertains to the purchase of a raw material to a major type of customer.

During this preliminary contact with respondents, the importance of obtaining prices for actual transactions is stressed. In the subsequent validation of the regularly supplied price quotations, one of the most important concerns is that the prices quoted are what actually prevail in the market. For this reason the commodity specialists try to ensure that their contact in each manufacturing company is someone who can supply that information.

Once there is agreement on which price information is to be supplied, the price quotations are collected by means of a printed questionnaire. This is sent to each respondent who gives the price in effect for the reference month.

In cases where, there are no prices collected due to either an insignificant level of use in Canada or a lack of respondent co-operation, proxy series are constructed. Proxy series may consist of one or several other reported series combined together or use similar representative price indexes from another program or statistical agency.

Error detection

In the day-to-day collection and processing of these indexes, great emphasis is placed on the examination and evaluation of prices. Commodity specialists watch closely developments in the markets. They review the behaviour of the reported price changes, both to validate them directly and to ensure they are representative of the raw material movement as a whole. Outliers and incorrect or suspicious prices are identified during the initial data processing and then verbal follow-ups are carried out with the respondents to ensure the appropriate information has been obtained.

Imputation

Imputation is generally carried for missing data. In any given pricing period, there will be monthly price reports that are missing, due to the fact that respondents are late reporting or for some other reason. In this situation, either the last reported price quotation will be carried forward or an estimate will be made based on other information. Most commonly, the last reported price would be carried forward in the short term while the commodity specialist seeks clarification from the respondent. Carrying the previous price quotation forward is acceptable, as a significant number of prices do not change by much in any given month. Still, it is almost certain that some of the missing prices will have changed and for this reason, price indexes remain subject to revision for six months after publication of a given month's data. This is to accommodate late reports, corrections and some price quotations that are supplied quarterly or semi-annually.

On the other hand, some price quotations are missing because it is impossible to supply them. Where the commodity is out of season, and no purchase orders normally occur during that period, the last reported price quotation is carried forward until a new price quote is available in the next season (for example, raw tobacco prices are collected seasonally). This procedure tends to dampen index movements when the commodity is out of season, and causes upward or downward shifts in the commodity index when the item is reintroduced. This is less significant at higher levels of aggregation, and over longer periods of time.

As the materials priced are raw materials, the specifications do not change often. Consequently, adjusting for changes in the quality of the product is not an important concern in this index.

Estimation

Weights

The composite indexes are weighted averages of the elemental indexes. For the RMPI, commodity weights are derived from the costs of purchases of raw materials as reported for the 2010 ASML. This survey provides values at purchasers' prices of commodities purchased as intermediate inputs. Within individual commodity indexes, the prices are equally weighted, unless there is good data from which to weight individual varieties. Each December, product weights within a commodity index can be changed in order to reflect important changes in production patterns. The entire weighting scheme for the RMPI is generally revised every 5 years. The current time base and weight base is 2010=100.

Indexes

Price indexes for about 90 individual raw materials, and aggregations into six major groups and a total are produced and classified according to the 2012 NAPCS.

Historical data

Since the 1980s, the product classification system used by the RMPI has been the Principal Commodity Group (PCG). Changes in the economy require that classification systems be updated periodically. The RMPI has adopted the NAPCS developed by Canada, the United States and Mexico.

The historical series consist of all data for the months prior to January 2010. Because of the change from PCG to NAPCS, where possible, historical series were obtained by linking together indexes from the 2010-based RMPI series and the corresponding 2002-based RMPI series in order to have as much historical information as possible. These historical series were obtained by rebasing the 2002-based RMPI series using, as the rebasing factor, the ratio of 100 to the annual average index of 2010.

Quality evaluation

The quality of this index is maintained through the expertise of the commodity specialists. They develop a thorough knowledge of the domain, which is supplemented by outside personal contacts for particular industries. Much time and effort is devoted to detecting and following up unusual fluctuations over time in the pricing patterns of commodities. Prior to dissemination, the price indexes are analyzed and historic trends reviewed.

Disclosure control

Statistics Canada is prohibited by law from releasing any information it collects which could identify any person, business, or organization, unless consent has been given by the respondent or as permitted by the Statistics Act. Various confidentiality rules are applied to all data that are released or published to prevent the publication or disclosure of any information deemed confidential. If necessary, data are suppressed to prevent direct or residual disclosure of identifiable data.

Collected data are converted to a price index and data are released as such, so that it is not possible to identify the suppliers of the original raw price information.

Revisions and seasonal adjustment

With each release, data for the previous six months may have been revised. The indexes are not seasonally adjusted. Exceptions to this rule are announced. However, typically revisions for the RMPI affect the monthly movement by an average of plus or minus 0.2%.

Data accuracy

The RMPI attempts to express, in a single number, price changes that involve a range of raw materials. There is no obvious, let alone absolute, way of perceiving what a composite price movement really is. For the RMPI, the fixed quantities of the commodities are proportional to the purchases made by manufacturing establishments in Canada in the basket reference period, that is, 2010. Consequently, considerations about the quality of the RMPI relate to these concepts of composite price movements.

The statistical accuracy of this index depends on price and shipment value data. Price data are obtained from a sample survey. Shipment value data mainly rests on other sample surveys, such as the ASML. Therefore, this data is subject to their own errors. Users concerned with the accuracy of the underlying ASML data are invited to contact the Manufacturing and Energy Division.

In addition to sampling errors, raw material price indexes are also subject to errors in price collection and editing. This is particularly true when quality change occurs in the sample with regard to the estimation of pure price change. However, for raw materials priced, the specifications do not change often. Consequently, adjusting for changes in the quality of the product is not an important concern in this index.

Though the RMPI uses a sample survey methodology to obtain the necessary information, confidence intervals are not currently estimated, due to the longitudinal nature of price index series. Indexes for higher and lower levels of aggregation are considered to be statistically reliable.

Documentation