General application

10.32 . The need to determine which of the various factors described in the previous section explain differences in price arises whenever one studies time series of value data and has to separate price changes and volume changes. It follows that, even at a fine level of detail, series of quantity data may give only crude measures of volume changes, as they do not properly reflect changes that may have occurred in the mix of different qualities. This means that, for example, a constant number of physical units, recorded for a certain flow, understates the volume change if the composition has changed in favour of units with higher quality. This shift implies a change in average quality and must be registered as an increase in the volume index. In general, the best method of estimating volume changes for flows of goods and services is deflating value data with price indices. Since all changes in average quality are correctly reflected in the value series, dividing by a representative price index, which is adjusted for quality changes, gives a correct volume index.

10.33 . Deflation with price indices may not always be best in practice and other methods have to be adopted. Value series may, for example, have been established by multiplying price and quantity data and constant price data can then be obtained by using prices from the base year. Alternatively, some value series may be of an inferior quality or difficulties may exist in obtaining reliable price indices. Estimates can then be made on the basis of quantity indicators. In these cases care must be taken that the quantities refer to products that are as homogeneous as possible. If none of the methods described above are applicable, constant price data on outputs may have to be based on estimates of inputs at constant prices.

10.34 . For non-market services the possibility of deflating values by using price indices does not exist and other solutions have to be applied. These are described in paragraphs 10.41. – 10.46. below.