Services producer price index overview

Data extracted in July 2023.

Planned article update: July 2024.

Highlights

Service producer prices as requested by the EBS-Regulation, EU and euro area (2015=100) - Source: Eurostat (sts_sepp_q)

This article presents the services producer price index (SPPI) (also called service output price index), measuring prices of services as calculated and used at the level of the European Union (EU) and its Member States.

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General overview

The services producer price index is a business cycle indicator which provides information on the development of prices for numerous service industries. This information is used for the analysis of inflation and its sources, but also for the deflation of value measures in the service sector.

This article presents services producer prices for all uses (B2All indicators), i.e. services consumed by private consumers, by business customers and others. However, the bulk of the service industries covered by the indicator are those which are, as a matter of fact, mainly demanded by businesses (B2B indicator, including also transaction with the Government/State, i.e. B2G), they include for example freight transport, legal and accounting services, advertising and market research.

Services producer prices - development since 2006

Figure 1 presents aggregated services producer prices for the EU and the euro area. In principle, the indicators combine all service areas for which services producer prices are collected under the European Business Statistics Regulation (EC) of 27 November 2019, i.e. road, water and air transport, storage and cargo handling, telecommunication services, food and beverage services, legal and accounting services, management consulting, advertising and market research, employment, security and cleaning services. Please note that currently data series are not yet available for all service industries covered by the regulation since there is a transition phase during which National Statistical Institutes built up the statistics for the new service areas which were not required by the 2005 regulation on service prices.

Between their introduction in 2006 and mid-2008, aggregated services producer prices showed a relatively steady increase. During the economic and financial crisis prices fell between mid-2008 and mid-2009. Since the third quarter of 2009, prices have been more or less steadily increasing and the price aggregate for the euro area already regained the pre-crisis high at the end of 2014. In 2015 and early 2016, prices slightly dropped again. In the years that followed, service producer prices in the EU and in the euro area continued on a rather steady and increasing path. After the Covid-19 crisis, the price increase became even more accelerated. Between the third quarter of 2020 and the third quarter of 2022, the output price level for services increased by 9.0 %. During the last two months prices stabilised at a relatively high level.

Figure 1: Service producer prices as requested by the EBS-Regulation, EU and euro area (2015=100) - Source: Eurostat (sts_sepp_q)

Transport services

Figure 2 provides an overview of prices for various transport services. In general, transport services, especially road transport and warehousing and support services, show a relatively steady but slow increasing trend. Only in 2022 did price increases become somewhat more dynamic. Air transport is also on a long-term increase but with a clear period pattern of price increases in the second and third quarter, and regular price reductions in the fourth quarter (note that, unlike many other STS indices, price indices are not adjusted for seasonal effects). For water transport, producer prices underwent a rather special development with a pronounced fall between the last quarter of 2008 and the second quarter of 2009, possibly reflecting over-capacities at the beginning of the crisis, and an equally steep upturn on the periods that followed. Prices dropped again relatively steeply in 2015 and 2016. In 2021 and the first half of 2022, water transport prices showed a considerable increase but fell again in the last quarter of 2022 and the first quarter of 2023. Because of the comparatively large variations in water transport prices and despite their relatively small share in the total STS service aggregate, the ups and downs in water transport prices can have a significant effect on the total service price level.

Figure 2: Service producer prices for transport services, EU (2015=100) -Source: Eurostat (sts_sepp_q)

Information, communication, accommodation and food services

While prices for postal and courier services have been on a very steady increase since 2006, the prices for telecommunication show a considerable reduction between 2006 and 2016. Since 2016, the decline was less pronounced but still steady (Figure 3). Prices for food services have dynamically and steadily grown since the introduction of service producer prices in 2006. Prices for accommodation services are also on an increasing long term trend but show – just like prices for air transport – a clear seasonal pattern with high levels in spring and summer and lower levels during the winter. Prices for computer and information services have remained relatively stable over the last years.

Figure 3: Service producer prices for information, communication, accommodation and food services, EU (2015=100) -Source: Eurostat (sts_sepp_q)

Business services

For many business services (Figure 4) prices have shown a steady increase since 2006, especially for employment services, cleaning and security and investigation services. During the recent quarters this trend accelerated somewhat. In general, these prices do not show a pronounced seasonal pattern, and it can be assumed that many of these services (e.g. cleaning, security) are based on long-term contracts. Moreover, some services such as legal and accounting services may be considered largely indispensable by businesses and were not, or not significantly, reduced during the financial crisis so that there was no incentive for service providers to adjust prices. For many services producer prices displayed a rather stable upward trend.

Prices for advertising and market research showed a reaction to the financial and economic crisis. The indicators for this service area dropped by several percentage points in 2009 but have since then regained and surpassed the pre-crisis level. These prices also show an exceptionally clear seasonal pattern.

Figure 4: Service producer prices for business support services, EU (2015 = 100) - Source: Eurostat (sts_sepp_q)

Source data for tables and graphs

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Data sources

Information on output prices of services is generally collected by business surveys. However, for some prices other sources are used, for example information from regulatory bodies for telecommunication prices or for legal services. Web surveys are also used to collect certain price information. The service price indices are calculated on a quarterly basis, data are available from 2006 on. The collection of price data for services poses a number of statistical problems due to the special nature of services. In particular, it is difficult to ascertain the quality of services and therefore difficult to collect price data for services of a comparable nature and quality over time. Measurement problems are also due to the fact that services are often consumed on production and that many services are unique and tailor-made for the client.

Producer prices (output prices) represent the prices from the point of view of the producer. The prices are transaction prices and take into account discounts, rebates, surcharges and similar price-determining elements but not product taxes. There are several important differences between producer prices and consumer prices, notably:

Producer prices are calculated without VAT and similar taxes since they do not count as revenues from the point of view of the producer. Consumer prices include such taxes since the consumer has to pay them.
Producer prices cover output produced by domestic producers – including output that is exported. Consumer prices include the prices of imported goods.
An important use of producer prices is to deflate value data to produce information on real output, consumer prices are used to deflate expenditure data.

Figure 5 illustrates the difference between consumer and producer prices with the example of postal services.

Figure 5: Consumer prices and Service producer prices for postal services, EU (2015=100) - Source: Eurostat (sts_sepp_q) and (prc_hicp_midx)

Context

Services are an important part of European economies and contribute substantially to output and employment. Traditionally, short-term statistics mainly covered industrial and construction activities. When the monetary union was prepared it became clear that better and more complete data for the service sector were necessary. Regulation (EC) N0 1158/2005 of 6 July 2005 amended the short-term statistics regulation of 1998 (short-term statistics Regulation (EC) No 1165/98) and introduced the collection of output service prices on a quarterly basis. First data became available in 2009. The service output price index is today one of the Principal European Economic Indicators (PEEIs) which are used to monitor and steer economic policy in the EU and in the euro area.