Price Statistics for Services in India: Measurement, Deflators and ISS Exam Guide

As services account for a large part of economic activity, measuring service prices is essential for real output and productivity statistics. Services create special challenges because products may be customised and quality can change over time.

1. Why service prices are difficult to measure

Services are often intangible, heterogeneous and continuously changing. A comparable price requires a clear description of the service, its quality and the conditions under which it is supplied.

2. Service price index

A service price index measures price changes for a defined basket of services using specified weights and a base period. The index may be used to deflate nominal service output where the concepts are appropriately aligned.

3. Deflators and real output

A deflator converts a value measure into a volume or real measure by separating price effects. The relevant deflator must correspond to the output concept, industry coverage and period being analysed.

4. Quality adjustment

If the quality of a service changes, an observed price change may not represent a pure price change. Statistical methods may therefore attempt to separate quality improvements from changes in the price of a comparable service.

5. Data sources and limitations

Service price information can come from establishments, administrative records, transaction data or other sources. Coverage, confidentiality, product turnover and missing observations can affect index construction.

7. Three important questions

Try each one on your own first, then tap the answer.

Key takeaways

• Service prices require clear product and quality definitions.
• Price indices use baskets, weights and a reference period.
• Appropriate deflators are important for real service output.
• Quality change is a major measurement challenge in services.