Retail price index

The U.K. pharmaceutical industry is the fourth largest exporter of drugs in the world and the third leading export industry in the United Kingdom (22). How much of this success is due to the PPRS is a matter of conjecture, but the results are at least consistent with the second goal of the scheme. Whether British drug prices have been controlled by the system is also unclear. The Association of the British Pharmaceutical Industry reports that the U.K. retail price index increased by 29 percent between 1984 and 1989, while the pharmaceutical price index increased by only 22 percent. However, the Economist reported that drug prices outpaced the national inflation rate by more than 4 percent for the same time period (1 17). 

The first step for estimating future streams is to know the expected inflation. To do this, the procedure needs the future trend of index in which the inflation expectation is built. The inflation expectation determined by countries is based on a different basket of products and services. For instance, inflation-linked bonds issued in the United Kingdom or UK index-linked gilts, are linked to the Retail Price Index (RPI) inflation-linked bonds issued in the United States or TIPS are linked to the Consumer Price Index (CPI). Table 6.1 summarizes the key global inflation indices used by the major issuers of inflation-linked bonds. 

US Consumer Price Index (NSA) Retail Price Index Japan CPI... 

Index-linked gilts are linked to the Retail Prices Index (All Items), or RPI, with an eight-month lag. The inflation rate calculated from this index is often described as headline inflation, as a short-form name distinguishing it from the so-called underlying measure RPIX, which excludes mortgage interest payments and is the index subject to the Monetary Policy Committee s inflation target. 

For a full description of the RPI, see the National Statistics publication, The Retail Price Index Technical Manual, 1998 edition, www.statistics.gov.uk/downloads/ theme economy/RPI TECHNICAL MANUAL.pdf... 

In lengthy projects or projects where there is a commitment to long term maintenance, the supplier will wish to ensiue protection against the effects of unpredictable inflation. To handle this problem, it is customary to include a clause which allows charges to be increased in accordance with the rise in costs. The Government publishes several different financial indices the Retail Price Index is the most widely known but the most appropriate one for the purposes of this type of contract is the Business Costs Index. 

The index uses regular prices paid by the public, Value-Added Tax is included in the prices and subsidies are excluded. The price collection is done in the middle of the month. Prices are collected from a random sample of 600 retail stores, restaurants, and so on. 

The manufacturer sets a wholesale price w, and has a marginal cost of production c (normalized to zero). Each of n stores (indexed by 5 affects demand via price ps and marketing effort (which captures retail value-add through activities such as salesperson support, retailer advertising, and in-store displays). The cost of providing effort is quadratic C e) = e. is the unit retailing cost for independent retailer 5, while the manufacturer incurs a unit retailing cost of Vm in its own store. 

The Association of British Pharmaceutical Industry (London), publishes a Directory of Members, while the British and Overseas Pharmacist s Year Book (London, British and Colonial Druggist Ltd.) provides an alphabetical list of manufacturers and gives information on schools of pharmacy in many countries and institutions. The Chemist and Druggist Diary and Yearbook (Morgan) lists pharmaceutical suppliers, has a trade names index and also provides information on societies and institutions. The Pharmaceutical Society publishes annually an Index of New Products which gives the names and addresses of manufacturers with some technical information, while similar data with a list of trade names is given in the London Medical Handbook (British and Colonial Druggist Ltd.). Manufacturers are also listed alphabetically in the Proprietary Articles Trade Association Yearbook, and in the Retail Chemist Trade Price List of Proprietary Articles (London, Drury Press) which contains a list of trade names. British Chemical Plant (British Chemical Plant Manufacturers Association) lists its members. 

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