Software and IT services: Price links with supplier industries

Cost share. Cost share: rupees spent on this supplier industry for every ₹100 of output, from India’s 2022 input-output table (OECD). “Direct” is what the industry buys from the supplier itself; “total” adds what its other suppliers buy from it in turn. Rule of thumb: a 10% rise in the supplier’s prices adds about one tenth of the total share to costs, if passed on in full.

Raw-material mix. Raw-material mix: of every ₹100 of the industry’s output, how many rupees end up with producers of commodities (farming, forestry, fishing, mining, basic metals), chemicals and energy (coal, oil and gas, refined fuels, power and gas supply), counting everything bought along the chain. Shares across all sectors add to ₹100, so nothing is counted twice. India 2022 input-output table (OECD).

Correlation. Price correlation: how closely monthly price changes move together, from −1 to +1, since 2006 (US) or 2012 (India). Above 0.7 strong, 0.4 to 0.7 moderate, 0.2 to 0.4 weak. The 12-month figure compares year-on-year moves, which shows shared cycles.

Lead or lag. Lead or lag: whether the correlation is clearly higher when one price is shifted by 1 to 6 months. “Supplier leads by 3 mo” means its price changes tend to show up in this industry’s prices about 3 months later.

Granger test. Granger test: does the past of one price help forecast the other, beyond what the other’s own past already tells? An arrow means the test is significant (p < 0.05) in that direction. It is evidence of predictive lead, not proof of cause; the cost share shows whether a real cost link exists.

Prices compared. Which prices are compared: India WPI (wholesale price index, Office of the Economic Adviser, monthly from April 2012) when both industries have one, otherwise US producer price indexes (BLS via FRED, monthly from 2006). Services and public administration have no WPI.