4.7 From working-day adjustment to pay legacy

Monthly and quarterly data can also be used to compute working-day adjusted or seasonally adjusted index series as well as trends. The purpose of adjustment is to eliminate seasonal variation (i.e. its impact on prices, wages or production volumes) and to facilitate comparison between different periods. Easter, for example, is sometimes in March and sometimes in April, and therefore the number of working days in March and April will vary. In the volume index of industrial production, adjustment for seasonal variation and the different number of working days in different months is also important for reasons of comparability. The Figure below shows the original, working-day adjusted, seasonally adjusted and trend of the annual change in the volume index of industrial production in 1999-2003.

Price and pay legacy

News stories on collective bargaining sometimes talk about price and pay legacy. This means the ratio between the December / fourth quarter index and the index for the whole year.

For example, the consumer price index for December 2002 was 104.46 and the annual average for 2002 was 104.18. If prices in 2003 remain unchanged at the same level as in December 2002, i.e. at index value 104.46, the annual change in the 2003 consumer price index will be:

This figure of 0.3 per cent, which is the ratio between the December index and the average for the whole year, is called the 2002 price legacy for 2003. In other words, we have a 0.3 per cent inflation for 2003 even before the year has started!

Our second example shows how to calculate the pay legacy from 2002. The average index of wage and salary earnings in 2002 was 127.5, the fourth quarter figure for 2002 was 128.4. The 2002 pay legacy for 2003 was:

Even without the pay rises and wage drifts that took effect on 1 March 2003, annual earnings in 2003 would have increased by 0.7 per cent on 2002.