PREDICT indices: a time to revisit, review and reformat

Every so often in the long history of Process Engineering's plant cost indices, known as the PREDICT indices since 1992, the data has to be revised. This usually happens every five years or so when the base date of the indices is changed in step with changes in the source data from which the indices are calculated. Now is such a time. But in addition to a base date change, we are also using this opportunity to make some minor amendments in the make-up of some of the component parts of the core index.

Last year the UK Office for National Statistics (ONS) announced that the Average Earnings Indices (AEI) had been suspended because of Government concerns about the integrity of the data from which the AEI were compiled. This was a direct result of the criticism levelled at the rebased AEI on its release in October 1998.

The chancellor of the exchequer Gordon Brown initiated a review led by Prof Martin Weale, director of the National Institute of Economic and Social Research. ONS commissioned Prof Ray Chambers of Southampton University to quality-assure the work put into producing the AEI, and acknowledged that it was in the best interests of all users to halt publication of the AEI series until the rebase could be given a clean bill of health.

Since the average earnings indices are used in the compilation of the PREDICT indices, forecast figures have been used to cover the periods up to December 1998. ONS has now, however, re-introduced the AEI on 2 March this year, albeit with a change in how the indices are calculated. Instead of monthly earnings indices including bonus payments, the new figures are based on a three-month centred average excluding bonus payments.

As a result of this new information, we have reviewed the make-up of the PREDICT indices and have added an average earnings component for fabricated metal products (excluding machinery).

{{The new format is therefore:

I = 0.37IM + 0.08IE + 0.1IC + 0.19IS + 0.26IO}}

where I is the composite index, IM is the mechanical engineering component, IE is for electrical engineering, IC is construction, IS is the index for site costs, and IO is for miscellaneous overheads.

{{Each of these components is in turn made up of several differentweighted factors as follows:

IM = 0.33mp + 0.11mw + 0.22fw + 0.33pa

IE = 0.6ep + 0.2ew + 0.2paIC = 0.5cp + 0.4cw +0.1paIS = 1.0cwIO = 1.0pa}}

where mp, ep and ew are the index numbers of producer prices for, respectively, mechanical equipment, electrical and optical equipment, and construction materials. And the average earnings indices (excluding bonus payments) are represented by:

{{mw = machinery and equipmentfw = fabricated metal productsew = electrical and opticalcw = constructionpa = public administration}}