Indexation of contracts

Indexation formulae generally depend either on a producer sale price index for the product in question, used to neutralise inflationary risk for the buyer, or one or more indices measuring the costs borne by the supplier, most often the producer sale price indices for the products purchased by the supplier, in order to neutralise inflationary risk for the vendor. This latter solution is generally preferable in terms of the economic optimum (eliminating the ‘inflationary risk premium’ from the supplier’s prices).

Further details regarding Insee indices, if the following elements feature in your contracts :

Producer price indices for products sold at market prices are given in the ‘prices and price indices’ section, covering different segments of the economy in accordance with the economic classification of activities and products: agriculture, industry, services, construction. More detailed products, sometimes more precise than the four-figure classes, are available in the groups ‘Divisions, groups and classes levels in CPF Rev. 2’.

The wholesale food price index (IGPA)

Producer price indices for French industrial goods sold in the French market (2010 base) – Market prices

Price index for the sale of French services to French businesses (BtoB) – Market prices

Producer price index for construction

Only agricultural and construction (buildings, civil engineering etc.) activities have price indices which take all cost dimensions into account (materials, labour, energy, services, transportation, waste management).

Agricultural means of production purchasing price index

Cost of production indices for construction

For other activities, the components which make up suppliers’ costs are generally covered by the producer price indices for sales at market prices of products purchased by suppliers (see above).

For contracts involving the supply of raw materials which have been mostly imported, there are specific indices and price measurements which are more suitable than the producer sale price indices, available in the following section:

International price indices and prices for raw materials

Industrial goods which are primarily imported can also be evaluated using ‘domestic supply’ indices, combining producer price indices and import price indices:

Price indices for the domestic supply of industrial products (2010 base)

The import price indices for industrial goods may also be used, but they are more liable to subsequent revision.

Labour cost indices have their own dedicated section in the chapter ‘wages, income, social security contributions and the cost of labour’. Find the segment of activity corresponding to the product in question.

Cost of labour and hourly cost of labour

Contracts may explicitly define the method to be used to replace an old series with a new one. The following advice is therefore only of use in the absence of such explicit instructions.

When a chronological series is ‘broken’, the ‘corresponding series’ link in the macroeconomic databank will almost always give a new series of identical (change of base) or very similar scope (generally a subset or superset), with a linking coefficient and date. The linking date corresponds to the last period for which the old series provides a ‘definitive’ value. Up to and including this date, there is no need to substitute the new series for the old one. After this date, however, it is important to use the new series and to transform it into a series consistent with the old one by multiplying the values by the linking coefficient, calculated as the ratio between the old and new series as of the linking date. The linking coefficient is rounded to 4 decimal places, but the product should generally be rounded to 1 decimal place: as with the old series published on the Insee website.

In the event that a broken time series has no designated corresponding series, or if this new series appears ill-suited to the needs of the contracting parties, the parties must agree on which new series to use, amending their contract accordingly. The method to be applied here is known as the double fraction method, and consists of breaking down the development of this series into discrete, homogenous series for two time periods: an old series up to the stoppage date, then a new series.

These two methods are equivalent, rounded to the nearest decimal place. Taking as an example the idbank code series 001653396, replaced in May 2013 by the idbank code series 001667622 with a linking coefficient of 1.0157, the first method gives :

Solving the equation numerically gives Price2013 * 0.963 (rounding each operation to 3 decimal places).

And the second :

i.e. the same values, but solving the equation numerically gives Price 2013 * 0.962 (rounding each operation to 3 decimal places), because the values are not rounded off in the same order.

The Macro-economic database(BDM): over 170.000 series and indices covering all economic and social fields.