Introduction

Producer price index (PPI): Activities

1 The PPI measures the cost of production rather than the cost of living.

Correct. The statement is indeed true.

The PPI measures prices at the level of the first commercial transaction and is a measure of the cost of production rather than the cost of living.

Incorrect. The statement is true.

The PPI measures prices at the level of the first commercial transaction and is a measure of the cost of production rather than the cost of living.

2 Only one PPI, namely the headline PPI, is compiled and published.

Incorrect. The statement is false.

As of 2013 five different PPIs are compiled and published. They are for final manufactured goods (headline PPI, intermediate manufactured goods, electricity and water, mining and agriculture, and forestry and fishing).

Correct. The statement is indeed false.

As of 2013 five different PPIs are compiled and published. They are for final manufactured goods (headline PPI, intermediate manufactured goods, electricity and water, mining and agriculture, and forestry and fishing).

3 The PPI excludes the prices of imported goods.

Incorrect. The statement is false.

The PPI incudes the prices of imported goods.

Correct. The statement is indeed false.

The PPI includes the prices of imported goods.

4 The PPI excludes the prices of services ─ only goods are included in the PPI basket.

Correct. The statement is indeed true.

The PPI, unlike the CPI, does not include the prices of services.

Incorrect. The statement is true.

The PPI, unlike the CPI, does not include the prices of services.

5 The PPI includes the prices of machines used in the production of goods.

Correct. The statement is indeed true.

The PPI includes the prices of capital goods as well as of intermediate goods.

Incorrect. The statement is true.

The PPI includes the prices of capital goods as well as of intermediate goods.

6 In cases where goods (e.g. foodstuffs) are included in both the CPI basket and the PPI basket, the same weights are accorded to these goods in both indices.

Incorrect. The statement is false.

Different weights are used in the different indices. Foodstuffs have a greater weight in the CPI than in the PPI.

Correct. The statement is indeed false.

Different weights are used in the different indices. Foodstuffs have a greater weight in the CPI than in the PPI.

7 Changes in exchange rates have a more direct and more rapid impact on the PPI than on the CPI.

Correct. The statement is indeed true.

One of the reasons why the prices of imported goods have a more immediate and greater impact on the PPI than on the CPI is that the PPI includes capital and intermediate goods, which constitute the major part of South African imports.

Incorrect. The statement is true.

One of the reasons why the prices of imported goods have a more immediate and greater impact on the PPI than on the CPI is that the PPI includes capital and intermediate goods, which constitute the major part of South African imports.

8 If value-added tax (VAT) increases, the PPI might be expected to increase as well.

Incorrect. The statement is false.

VAT is not included in the PPI.

Correct. The statement is indeed false.

VAT is not included in the PPI.

9 Movements in the PPI are often used to predict movements in the CPI.

Correct. The statement is indeed true.

Since PPI measures the cost of production, it does provide some indication of what might happen to the price of final goods and services.

Incorrect. The statement is true.

Since PPI measures the cost of production, it does provide some indication of what might happen to the price of final goods and services.

Calculation questions

Questions 10 to 13 are based on the Statistical Release P0142.1, Producer Price Index April 2020.

10 In April 2020 headline PPI increased by 1,2% month on same month of the previous year and decreased by -0,7% month on previous month. The annualised rate for month on previous month is -8,0%.

Correct. The statement is indeed true.

The calculation for the annualised rate is

$$
\Biggl[
\Biggl(
\frac{114,4}{115,2}
\Biggl)^12 -1
\Biggl]
\times 100
$$

= (0,99312 - 1) x 100
= (0,920 -1) x 100
= -0,080
= -8%

Insert video clip

Incorrect. The statement is true.

The calculation for the annualised rate is

$$
\Biggl[
\Biggl(
\frac{114,4}{115,2}
\Biggl)^\text{12} -1
\Biggl]
\times 100
$$

= (0,99312 - 1) x 100
= (0,920 -1) x 100
= -0,080
= -8%

Insert video clip

11 The percentage change in the PPI for April 2020 versus April 2019 (month on same month of previous year) was the highest for the electricity and water category.

Incorrect. The statement is false.

It was for the mining sector (43,9%) that the increase was the greatest. See Table C.

Correct. The statement is indeed false.

It was for the mining sector (43,9%) that the increase was the greatest. See table C.

12 The biggest contributor to the annual percentage change (April 2020 vs April 2019) in the PPI for mining was the non-ferrous metal ores category.

Correct. The statement is indeed true.

The contribution of the non-ferrous ores category was 30,3 percentage points. See figure 4.2.

Incorrect. The statement is true.

The contribution of the non-ferrous ores category was 30,3 percentage points. See figure 4.2.

13 The contribution of electricity to the annual percentage change (April 2020 vs April 2019) in the PPI for electricity and water was 14,3%.

Incorrect. The statement is false.

The contribution of electricity was 14,3 percentage points and not 14,3%. See figure 4.3.

Correct. The statement is indeed false.

The contribution of electricity was 14,3 percentage points and not 14,3%. See figure 4.3.