The Construction of the Bank's new UK Commodity Price Index

Andrew Logan and Lucy O'Carroll

Bank of England working papers from Bank of England

Abstract: Indices which represent weighted averages of the prices of 'basic' commodities are often used in analysing inflationary pressures. Because basic commodities are usually purchased for further processing, changes in their prices will affect producers' costs, and these changes may eventually be passed on to consumers. Although there are a variety of such indices to choose from, they tend to reflect world demand for commodities (which is dominated by US demand) and so do not reflect commodity price pressures from a purely UK point of view. This paper presents a commodity price index which attempts to reflect UK commodity price pressures. It differs from other indices in three main ways. First, the weights used are based on UK demand for each commodity. Second, instead of using a sterling equivalent of world prices, the index uses prices actually paid in the UK and so allows for factors such as CAP administered prices. Third, its coverage of fuels is more comprehensive than most indices. This index is already presented in the Inflation Report and an article describing it appeared in the August 1995 Quarterly Bulletin. The purpose of the Working Paper is mainly to outline the method for those who wish to replicate this index.

Date: 1996-03
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