International Recommendations for
the Index of Industrial
Production (IIP)
United Nations Statistics Division/DESA
History
 Index of Industrial Production has been
calculated since the 1920s
 UNSD has collected series going back to 1938
 Methodology was described in 1950 UN
Manual on “Index of industrial production”
 Number 1 in series of publications on
international recommendations and guidelines
(Series F)
History
 The 1950 manual was not updated
 However, related guidance materials
were published:
 Guidelines on Principles of a System of
Price and Quantity Statistics, 1977
 Manual on Producers’ Price Indices for
Industrial Goods,1979
History
 Why a revision of the IIP publication?
 The previous UN publication on the IIP was
published in 1950
 Methods and approaches have changed
over time (e.g. fixed weight vs. chain
approaches, volume aggregation vs.
deflation, etc.)
History
 Why a revision of the IIP publication?
 Various related standards and
international recommendations have
been updated over time:
 International Recommendations for
Industrial Statistics 2008
 System of National Accounts 2008
 Producer Price Index Manual
 Classifications (ISIC Rev.4, CPC ver.2)
 These changes need to be reflected in
the updated IIP text
Publication structure
 Part I includes a description of the international
recommendations, covering scope, fundamental
concepts, etc.
 It is encouraged that countries comply with the
recommendations set out in Part I.
 Part II includes international guidance to assist
countries in implementing these
recommendations
 It presents a set of methods (categorized as
‘preferred’, ‘alternative’ and ‘other’) and variables
for each ISIC Rev. 4 class in scope of this
publication for the compilation of an IIP, based on
current country practices
Key issues/recommendations
 1: Statistical units, classifications & business
register
 Recommendations outlining - Statistical Units to
use; classifications; use of business registers;
and data sources (incl. administrative data
sources).
 2: Frequency
 Publication recommends monthly compilation of
the IIP so that turning points in economic
activity can be identified as early as possible
Key issues/recommendations
 3: Scope of the IIP:
 Scope is defined to cover activities in sections
B - E of ISIC Rev.4, i.e. Mining and quarrying,
Manufacturing, Electricity, gas steam and airconditioning supply, as well as water supply,
sewerage, waste management and
remediation activities
 Section E contains new areas for inclusion in
the IIP
 This scope coincides with the scope of the
International Recommendations for Industrial
Statistics (IRIS) 2008, which includes the
index numbers of industrial production in its
list of recommended indicators
Key issues/recommendations
 4: Index formula
 Laspeyres index is recommended
 Preferred due to feasibility over Paasche or
Fischer index
 Chain linked, rather than fixed base indices are
recommended
 5: Weights and updates
 Annual update of weights should be carried out
to provide an up-to-date weighting structure
for the index.
 Weights should ideally be National Accounts
value added figures – adjustments necessary
to make them timely available.
Key issues/recommendations
 6: Calculation method
 Deflation should be used to obtain volume
estimates from value data, rather than volume
extrapolation method
 PPI is recommended as deflator
 Deflation should be done at lowest level, i.e. 4digit industry level
 Volume aggregation still works for areas with
limited number of products.
Key issues/recommendations
 7. Variables to be used
 To approximate industrial production for the IIP,
output measures (value or physical quantity of
output) are preferred over input measures
(labour or materials consumed)
 E.g. relationship between labour and production
value is affected by various factors, including
quality, efficiency etc.
 The publication provides suggestions for
preferred, alternate and other methods for the
use of variables in the IIP calculation.
 Suggestions are specific for each ISIC industry at
4-digit level
Key issues/recommendations
 8: Data adjustments
 Adjustments should be made for quality changes
 Either through the correction of PPI used in
deflation, or
 by adjusting input data when volume
aggregation is used
 Data series should be produced as work day
adjusted as well as seasonal adjusted series
Key issues/recommendations
 9: Dissemination
 The publication outlines elements / requirements
for the dissemination of IIP data
 General requirements for international reporting
are set in the International Recommendations for
Industrial Statistics (IRIS) 2008
 UNSD data collection will continue at 2-digit ISIC
level for annual and quarterly data, 1-digit ISIC
level for monthly data
 Currently for raw (unadjusted) data only
 Will switch to ISIC Rev.4 for production of regional IIP
Major changes
 Scope
 Enlarged definition of “industry”
 Recommended calculation method
 Deflation vs. volume extrapolation
 Frequency of weight updates
 Annual updates vs. 5-yearly updates
 Chain linking vs. fixed-weight approach
 Other recommendations, such as on seasonal
adjustment or dissemination issues reflect an
update of previous recommendations as well
Two main approaches to
calculate the IIP
Purpose of the IIP
 Purpose: to reflect the volume
developments in value added over
time
 Difficult: impossible to calculate value
added at high frequency and with
appropriate timeliness
 Solution: to obtain the best
approximation of short-term
movements in value added
Goal
 Measure volume changes over
time
 The measurement should not
reflect price changes in the
measurement period
Options
 1) Build a measurement that uses
only volume changes at detailed level
 “Volume extrapolation”
 2) Use a price deflator to remove the
price component from an overall
value measure, isolating the volume
component
 “Deflation”
Recommended approach
 The 1950 IIP manual relied on
the volume extrapolation
approach
 The 2010 IIP manual
recommends mostly the deflation
method
 Recommendations depend on
industry (see chapter 7)
What separates the two
approaches?
 Calculation method (formula)
 Data requirements
 Data availability
 Work load
 Stability, ability to adapt
Volume extrapolation
 concept : utilize the movements in
volumes directly to calculate an IIP
 suitable : volume variables
 formula : IIP=Q1/Q0 (at
elementary/product level)
 Use weights to aggregate to higher
levels
Volume extrapolation
 Possible input data:
 Output variables
 Physical quantity of output (at individual
product
 Input variables
 Labor input
 Materials consumed
 While input data are sometimes easier to
obtain, they assume a fixed relationship
between input and output
Volume extrapolation
 Data requirements
 Data need to be available for a detailed set of
products
 Volume extrapolation starts at the product level,
then aggregates through product groups and
industries
 Products have to be representative for the
respective industries fro which the IIP is
compiled
 Work load
 High due to need for detailed product data
(collection and processing)
Volume extrapolation
 Stability
 In some areas, shifting of
production between products (or
product groups) can negatively
influence the data quality
 Example: pharmaceuticals
 Ability to adapt
 Difficult to account for quality
changes
Deflation method
 concept : isolate the volume component
from value variables
 suitable : value variables
 formula :
IIP=(Value1/Price index) / Value0
=(∑P1Q1/Price Index) / ∑P0Q0
 At level where price index is available
Deflation method
 Possible input data:
 Output variables:
 Value of output
 Value of output sold
 Needed only at more aggregated level
than data for volume extrapolation
Deflation method
 Data requirements
 Data need to be available only at a
higher level of aggregation
 BUT: “Appropriate” deflator (price index)
needs to be available at this level too
 Deflation should take place at lowest
level possible
 Typically: 4-digit ISIC level; could be
product group level
Deflation method
 Work load
 Reduced (less detailed data
collection and processing)
 BUT: price index needs to be
calculated
 Responsibility shifts to another area
 “Duplication” of work can be avoided
Deflation method
 Stability
 Price movements are more stable than
quantity movements in many areas
 Deflation provides a better tool (while
investing same amount of work) to
calculate IIP for areas with
frequently/seasonally shifting product
patterns
 Ability to adapt
 Quality effects are accounted for in the
deflator (price index)
Recommendation
 The IRIIP 2010 recommends the
deflation method as the preferred
approach to calculation of the IIP
 Exceptions are made by industry, e.g. if
only a small set of products exist and if
quality changes are not a major concern
 Chapter 7 of the publication provides
recommendations by industry, including
choice of variables