Raw Materials Price Index (RMPI)
Detailed information for December 2008
The Raw Materials Price Index (RMPI) measures price changes for raw materials purchased by industries in Canada for further processing.
Data release - January 29, 2009
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. Thus transportation charges, net taxes paid, and custom duties are all included, as well as the effects of subsidies, if any are paid to the purchaser.
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 there was no longer 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) and it was quickly apparent 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 inputs 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) by Industry. 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.
The RMPI basket weights are generally updated every five years. Weights used to aggregate commodity indexes are taken from the input or "Use" matrix of the Input-Output (I/O) system, which provides an integrated set of commodity values for all manufacturing industries.
Reference period: The time period for which the RMPI equals 100; currently this is the year 1997.
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.
- Industrial product price indexes
- Prices and price indexes
Data sources and methodology
The target population of the RMPI consists of those manufacturing establishments residing and producing in Canada, as identified in the Annual Survey of Manufactures (ASM).
The geographical universe for the RMPI is all of Canada, while the industry universe corresponds to the North American Industry Classification System (NAICS) and the commodity universe is all industrial goods manufactured in Canada. 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.
Commodity specialists mostly use Administrative data (60%) for raw material price data. Also used to collect raw material data are mail-out questionnaires (34%), 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).
This is a sample survey.
The sampling frame for the RMPI is based on the most recent data available from the ASM. 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, 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.
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 34% of the data are collected by direct survey, 60% of the data from administrative sources and the remaining 6% 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. In order to do so and still remain timely, the RMPI is derived from prices reported for the 15th of the month or the nearest prior business day for comparable transactions. However, if special circumstances exist where respondents provide more than one price for the month, a weighted monthly average would be derived.
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 on the 15th of each month, or the last previous business day.
In rare cases where, for a particular raw material, 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.
View the Questionnaire(s) and reporting guide(s) .
In the day-to-day collection and processing of these indexes, emphasis is placed on the examination and evaluation of prices. Commodity specialists and industry analysts 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, if necessary, follow-ups are carried out with the respondents to ensure the appropriate information has been obtained.
Imputation is generally carried out 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 re-introduced. 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.
The composite indexes are weighted averages of the elemental indexes. For the RMPI, commodity weights are taken from the 1997 Input/Output tables which provide values at purchasers' prices of commodities purchased as intermediate inputs. Within individual commodity indexes, the prices are weighted according to their market share. If data are not available, the prices are equally weighted. 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.
Price indexes for about 130 individual raw materials, and aggregations into seven major groups and a total are produced.
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 establishments in Canada in the basket reference period, that is 1997. 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 value data. Price data are obtained from a sample survey. Value data mainly rest on other sample surveys, such as the ASM and the input-output tables. Both kinds of input data are subject therefore to their own errors. Users concerned with the accuracy of the underlying input/output tables for 1997 and the ASM are invited to contact the appropriate Statistics Canada Divisions, the Input-Output Division and the Manufacturing, Construction and Energy Division.
The accuracy of the monthly commodity price quotations is maintained through the expertise of the commodity specialists. They develop a thorough industry knowledge, which is supplemented by outside personal contacts for particular industries. Much time and effort is devoted to detecting and following up unusual fluctuations in the monthly pricing patterns of commodities.
In this vein, the RMPI is closer to a typical survey carried out by Statistics Canada than it is to the Consumer Price Index, since part of the data is collected through a survey process. As such, response rates are important to the overall quality of the index, and in this regard the commodity specialists strive to ensure that the RMPI is well responded to.
The RMPI series is frequently used at higher and lower levels of aggregation. Both these levels of aggregations have their own strengths. For the higher levels of aggregation, the risk that sampling errors will affect the index diminishes when more price quotes are used in their calculation. This implies that raw material price indexes are likely to be more reliable for high level aggregations than for lower level aggregations, and for annual price changes than for monthly price changes.
In addition to sampling errors, raw material price indexes are also subject to errors in price collection and editing. This is also 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 a concern in this index.
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 price indexes and data are released as such, so that it is not possible to identify the suppliers of raw prices.
Revisions and seasonal adjustment
Each release of index numbers is subject to revision for six months, (e.g., when the July index is released, the index for January becomes final). Exceptions to this rule are announced. However, revisions of the RMPI are, for the most part, very small (the average revision being plus or minus 0.2%).
The RMPI compares in percentage terms, prices in any given time period to prices in the official base period, which, at present is 1997=100. The official time base for the RMPI was changed from 1992=100 starting with the October 2001 reference month.
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.