What is Industrial Production Index and How is it Calculated?
Industrial production index is an indicator that measures the change in production activities in the industrial sector of a country in a certain period. Industrial production index plays an important role in the analysis of macroeconomic variables such as economic growth, employment, inflation and foreign trade.
How is the industrial production index calculated? Industrial production index is calculated by taking the weighted average of the mining and quarrying, manufacturing industry and electricity, gas, steam and air conditioning production and distribution sub-sectors that make up the industrial sector. The weight of each subsector is determined by that subsector's contribution to gross domestic product (GDP). The weights of different activity lines within each sub-sector are calculated in the same way.
The data used in calculating the industrial production index is obtained from the Industrial and Service Producer Price Indices (SHÜFE) and Industrial Production Survey, which are published regularly every month by the Turkish Statistical Institute (TUIK). SHPI is used to monitor price changes in industrial and service sectors. Industrial Production Survey is used to collect information such as production amounts, working hours, employment numbers and capacity utilization rates of enterprises in the industrial sector.
There are two different methods for calculating the industrial production index: the fixed base year method and the chain link method. In the fixed base year method, the value of industrial production is expressed in prices of a particular year. In this method, the selection of the base year is important. The older the base year, the more difficult it may be to reflect changes in industry structure. In the chain-linked method, the value of industrial production is expressed in prices of each year. In this method, the selection of the base year is unimportant. The chain link method gives a more current and realistic result than the fixed base year method.
Industrial production index has been calculated by the chain link method in Turkey since 2005. It was announced that the industrial production index increased by 9% in December 2020 compared to the same month of the previous year. It can be seen that the 10.4% growth of the manufacturing industry is behind this increase.