METHODOLOGY
ANNEX ISupplementary provisions
ANNEX I METHODOLOGY 1. METHODOLOGICAL MANUAL AND WORK PROGRAMME 1.1. A methodological manual will be provided by the Commission (Eurostat), following consultation with the Member States, describing the methods used at the various stages of compiling PPPs, including the methods for estimating missing basic information and for estimating missing parities. The methodological manual will be revised whenever a significant change to the methodology is made. It may introduce new methods to improve data quality, reduce costs or lessen the burden on data suppliers. 1.2. The Commission (Eurostat) will establish, by 30 November each year and in consultation with the Member States, an annual Work Programme for the following calendar year setting out the timetable for the specification and the provision of the basic information required for that year. 1.3. The annual Work Programme will determine the format for provision of data to be used by the Member States, and any other actions necessary in order to accomplish the calculation and publication of PPPs. 1.4. The basic information supplied according to point 1.2 may be revised, but the results for the reference year will be calculated from information available according to the timetable specified in Article 9. Where information is not complete or not available at that date, the Commission (Eurostat) will estimate the missing basic information. 1.5. Should a Member State fail to submit complete basic information, it will specify why the information is incomplete, when it will submit complete information or, if appropriate, why complete information cannot be provided. 2. BASIC INFORMATION 2.1. Basic information items For the purpose of this Regulation, basic information pursuant to Articles 2 and 4 and the minimum frequency of new data supply will comprise and be provided as follows: Basic information Minimum frequency GDP expenditure weights ( 1 ) Annual Actual and imputed rentals ( 2 ) Annual Compensation of employees Annual Temporal adjustment factors Annual Prices of consumer goods and services and related representativity indicators 3 years ( 3 ) Prices of equipment goods 3 years Prices of construction projects 3 years Spatial adjustment factors 6 years 2.2. Procedure for obtaining basic information The Commission (Eurostat), after taking account of the views of the Member States, will determine the sources and data suppliers to be used for each of the above items of basic information. If the Commission (Eurostat) obtains basic information from a data supplier other than a Member State, the latter will be relieved of the obligations set out in points 5.1.4 to 5.1.13. 3. NATIONAL AVERAGE PRICES 3.1. Notwithstanding the provisions of Article 2(2), data collection may be limited to one or more locations within the economic territory. Such data may be used for PPP calculations provided that they are accompanied by appropriate spatial adjustment factors. Such spatial adjustment factors will be used to adjust survey data in the relevant locations to those representative of the national average. 3.2. Spatial adjustment factors will be supplied at basic heading level. They will be no more than six years old at the reference period of the survey. 4. ANNUAL AVERAGE PRICES Notwithstanding the provisions of Article 2(2), data collection may be limited to a specific period of time. Such data may be used for PPP calculations provided that they are accompanied by appropriate temporal adjustment factors. Such temporal adjustment factors will be used to adjust survey data in this period to those representative of the annual average. 5. QUALITY 5.1. Minimum standards for basic information 5.1.1. The list of items to be priced will be designed to comprise items whose specifications ensure comparability between countries. 5.1.2. The list of items to be priced will be designed so that each Member State can indicate at least one representative item which can be priced in at least one other Member State for each basic heading. 5.1.3. The item list will be designed in order to achieve the highest practicable level of equi-representativity so that, as a minimum, each country has to price one representative item for each basic heading and this representative item has to be priced by at least one other country. 5.1.4. Each Member State will price items according to the specifications in the item list. 5.1.5. Each Member State will price a sufficient number of items within each basic heading that are available in its market, even though they may not be considered as representative of that basic heading. 5.1.6. Each Member State will supply prices of at least one representative item within each basic heading. The representative items will be indicated by a representativity indicator. 5.1.7. Each Member State will collect a sufficient number of price quotations for each item priced to ensure a reliable average price per item taking account of its market structure. 5.1.8. The selection of outlet types will be designed to adequately reflect the domestic pattern of consumption within the Member State according to the item. 5.1.9. The outlet selection in a location will be designed to adequately reflect the pattern of consumption of the residents of the location and the availability of items. 5.1.10. Each Member State will supply the Commission (Eurostat) with data on compensation of employees for selected occupations with reference to the sector General Government (S 13) as defined in ESA 95. 5.1.11. Each Member State will supply the Commission (Eurostat) with temporal adjustment factors which allow calculation of PPPs from prices collected at a specific time which adequately reflect the annual average price level. 5.1.12. Each Member State will supply the Commission (Eurostat) with spatial adjustment factors which allow calculation of PPPs with prices collected in specific locations which adequately reflect the national average price level. 5.1.13. Each Member State will supply the Commission (Eurostat) with weights relating to each basic heading as specified in Annex II which reflect the expenditure pattern in the Member State for the reference year. 5.2. Minimum standards for the validation of price survey results 5.2.1. Each Member State will, before transmitting the data to the Commission (Eurostat), carry out a review of data validity based on: — maximum and minimum prices, — the average price and coefficient of variation, — the number of priced items per basic heading, — the number of priced representative items per basic heading, and — the number of prices observed per item. 5.2.2. An electronic tool containing the algorithms required for the purposes of point 5.2.1 will be supplied by the Commission (Eurostat) to the Member States. 5.2.3. The Commission (Eurostat) will, before finalising the survey results, carry out validity checks, in conjunction with the Member States, based on indicators including: For each basic heading: — the number of items priced by each country, — the number of items attributed a representativity indicator by each country, — the price level index, — the results of the previous survey covering the same basic heading, and — price level indices in PPP terms for each country. For each item: — the number of prices observed by each country, and — the variation coefficients of: (i) average prices in national currencies, (ii) price level indices in PPP terms, and (iii) price level indices in PPP terms for each country. 5.2.4. The Commission (Eurostat) will, before finalising the PPP results at aggregate level, carry out validity checks based on indicators including: At the level of total GDP and its main aggregates: — the consistency of GDP expenditure weights and population estimates with published data, — a comparison of per capita volume indices for current and previous calculations, and — a comparison of price level indices for current and previous calculations. At the level of each basic heading: — a comparison of the GDP weighting structure for current and previous calculations, and — estimates of missing data, where relevant. 5.3. Reporting and assessment 5.3.1. Each Member State will maintain documentation which gives a full description of the manner in which this Regulation has been implemented. This documentation will be available to the Commission (Eurostat) and the other Member States. 5.3.2. Each Member State will have its PPP process assessed at least once every six years by the Commission (Eurostat). The assessments, planned annually and included in the annual Work Programme, will review compliance with this Regulation. A report, based on the assessments, will be made by the Commission (Eurostat) and be made publicly available, including on its website. 5.3.3. In accordance with Article 7(3), shortly after each consumer price survey, a report by the Member State responsible will be given to the Commission (Eurostat) providing information on the way in which the survey was conducted. The Commission (Eurostat) will provide each Member State with a summary of these reports. 6. CONSUMER PRICE SURVEY PROCEDURE 6.1. Member States will carry out the price surveys according to the Work Programme. 6.2. For each survey, the Commission (Eurostat) will prepare the survey item list, based on proposals which will be made by each Member State for each basic heading. 6.3. The Commission (Eurostat) will provide, together with the item list, in all official languages of the European Union, a translation of all specifications in each survey list. 7. CALCULATION PROCEDURE 7.1. Calculation of bilateral parities at basic heading level (a) The calculation of multilateral Èltetò-Köves-Szulc (hereinafter referred to as ‘EKS’) parities at basic heading level will be based on a matrix of bilateral parities for each pair of participant countries. (b) The calculation of bilateral parities will be carried out by reference to the prices observed for, and the representativity indicators attributed to, the underlying items. (c) The average survey price for each item will be established as the simple arithmetic mean of the price observations recorded for that item. (d) The national annual average price will be estimated, where necessary, on the basis of the average survey price by using appropriate spatial and temporal adjustment factors. (e) The ratios of the adjusted average prices will then be calculated, where possible, for items and pairs of participant countries, together with their inverse. (f) PPPs will then be calculated, where possible, for all pairs of participant countries for the basic heading. For each pair of participant countries, PPPs will be calculated as the weighted geometric mean of: — the geometric mean of the price ratios of items which are indicated as representative of both countries, — the geometric mean of the price ratios of items which are indicated as representative of the first country but not of the second country, — the geometric mean of the price ratios of items which are indicated as representative of the second country but not of the first country, using weights reflecting the relative representativity of all items priced by both countries. 7.2. Estimation of missing bilateral parities If for any basic heading the bilateral PPPs cannot be calculated, the missing bilateral PPPs will be estimated, where possible, by using the standard procedure of geometric averaging of indirect parities via third countries. Should the matrix of bilateral PPPs for a basic heading still contain any missing values after this estimation procedure, the calculation of multilateral EKS parities will then not be possible for the countries for which bilateral PPPs are missing. Such missing EKS parities will then be estimated by the Commission (Eurostat), using reference PPPs from similar basic headings or any other appropriate estimation method. 7.3. The calculation of bilateral parities at aggregate level (a) The calculation of bilateral parities at a particular level of national accounts aggregation will be carried out using the EKS parities (see point 7.4), and the GDP expenditure weights, for the underlying basic headings. (b) A Laspeyres-type parity will then be calculated for the selected level of aggregation as the arithmetic mean of the parities for the underlying basic headings, weighted by the relative percentages (or nominal values) for the second country of each pair of participant countries. (c) A Paasche-type parity will then be calculated for the selected level of aggregation as the harmonic mean of the parities for the underlying basic headings, weighted by the relative percentages (or nominal values) for the first country of each pair of participant countries. (d) A Fisher-type parity will then be calculated for the selected level of aggregation as the geometric mean of the Laspeyres-type and Paasche-type parities established for each pair of participant countries. 7.4. Calculation of transitive multilateral PPPS The calculation of transitive multilateral parities will be carried out either at basic heading level or any aggregated level by using the EKS procedure based on a complete matrix of Fisher-type parities between each pair of participant countries as follows: where tEKSs denotes the EKS parity between country s and country t; tFs denotes the Fisher-type parity between country s and country t; z denotes the number of participant countries. 8. TRANSMISSION 8.1. The Commission (Eurostat) will supply to the Member States the templates for electronic transmission of the basic information necessary to calculate PPPs. 8.2. Member States will provide basic information to the Commission (Eurostat) in accordance with the templates. 9. PUBLICATION In addition to the provisions contained in Article 9(2), the Commission (Eurostat) may publish results at a more detailed level after consultation with the Member States. 10. CORRECTIONS 10.1. When a mistake is discovered by a Member State, it will immediately and on its own initiative provide the Commission (Eurostat) with correct basic information. In addition, a Member State will inform the Commission (Eurostat) of any suspected inappropriate application of the calculation procedure. 10.2. After becoming aware of a mistake, made either by a Member State or the Commission (Eurostat), the Commission (Eurostat) will inform the Member States and recalculate the PPPs within one month. 10.3. If the mistakes discovered result in a change of at least 0,5 percentage points at the level of per capita GDP in PPS of any Member State, the Commission (Eurostat) will publish a correction as soon as possible, unless such mistakes are discovered later than three months after the results have been published. 10.4. Where a mistake has occurred, the responsible body will take steps to prevent similar future occurrences. 10.5. Revisions carried out after 33 months following the end of the reference year to GDP expenditure weights or to population estimates will not require a correction to be made to PPP results. ( 1 ) These weights shall be consistent with the lowest level of available aggregates from national accounts. If the required detail is not available, the Member State may provide best estimates for the missing positions. ( 2 ) The dwellings stock quantity approach, as described in the methodological manual, may be used instead of the price approach in cases where actual rentals are missing or are statistically unreliable in line with Regulation (EC) No 1722/2005. ( 3 ) The minimum frequency refers to the provision of data for a particular product group, related to the rolling cycle of surveys.