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Producer Prices (Survey of)
 
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    NAME OF ORGANISATION
    Australian Bureau of Statistics (ABS)

    OVERVIEW

    Producer price indexes (PPIs) measure the proportionate, or percentage, changes in the prices of goods and services as they either leave the place of production or enter the production process. The Australian international trade price indexes (ITPIs) measure the changes in the prices of goods as they either cross the customs frontier into Australia or leave Australia bound for another country.

    The ABS compiles the following suite of quarterly input and output price indexes for different sectors of the Australian economy. These measures show both the changes in the prices that producers’ receive for their outputs, as well as the changes in prices that producers’ pay for their material inputs.

    Stage of Production (SOP) Producer Price Indexes

    • presented by stage of production, industry of origin and destination within the economy

    Manufacturing Industries Producer Price Indexes
    • Materials Used in Manufacturing Industries (MUMI) - an input price index
    • Articles Produced by Manufacturing Industries (APMI) - an output price index

    Construction Industries Producer Price Indexes
    • Materials Used in House Building - an input price index
    • General Construction Industry - an output price index

    Mining Industries Producer Price Indexes
    • Materials Used in Coal Mining - an input price index

    Service Industries Producer Price Indexes
    • Transport (freight) and storage industries - an output price index
    • Property and business services industries - an output price index

    Copper Materials Price Indexes
    • Copper Materials Used in the Manufacture of Electrical Equipment - an input price index

    International trade price indexes
    • Import Price Index (IPI) - an input price index
    • Export Price Index (EPI) - an output index


    PURPOSE
    Producer price indexes measure the rate of change in the prices of goods and services bought and sold by producers. An input PPI measures the rate of change in the prices of goods and services purchased by the producer. ABS examples include the price index of materials used in house building, and the price index of materials used in manufacturing industries. An output PPI measures the rate of change in the prices of products sold as they leave the producer. ABS examples include the price index of the output of the general construction industry, and the price index of articles produced by the manufacturing industries.

    A PPI provides a weighted average of the price changes in a group of products between one time period and another. The average price change over time is estimated by measuring actual prices at different points in time and weighting together the price changes in accordance with the relative importance of the products that are priced. Price index numbers are compiled from price observations collected from various pricing points (that is, various times during the pricing period). Price indexes compare changes in the price of a basket of goods or services between a particular period and reference, or base, period. For an index to provide information on price changes, at least two index numbers from the same series need to be available, and the index numbers must relate to the same basket of goods.

    PPIs do not measure price levels; rather, they are a measure of average changes in prices from one period to another. The PPI does not measure the value of production or the cost of production, but it can be used to measure changes in output prices received by producers and changes in prices paid by producers for inputs of goods and services used in the production of output.

    Import and export prices are important extensions of domestic PPIs. They are used in the deflation of external trade values to provide indicators of the volume of international trade. Also, import prices feed into producer input indexes, since these are an important contribution to producer costs. Similarly, export prices feed into producer output indexes, since exports frequently represent a significant component of producer revenue.

    Price instability introduces uncertainty into economic analysis and decision making, so the main uses of the PPI and ITPI relate to efforts to minimise that uncertainty. They have the following main uses:
    • as a national accounts deflator;
    • as a short-term indicator of inflationary trends;
    • for indexation in legal contracts in both the public and private sectors, particularly for more detailed PPI components;
    • by international organisations such as Eurostat, the OECD and IMF for economic monitoring and comparison.



    SCOPE

    Manufacturing Industries Producer Price Indexes

    The manufacturing indexes are constructed on a net sector basis with intra-sector transactions netted out. The scope of the output index is therefore restricted to transactions in articles produced by the defined sector of Australian manufacturing industry that are sold or transferred to domestic establishments outside that sector, or used as capital equipment, or exported. The scope of the input index relates to transactions in materials used in the defined sector of Australian manufacturing industry that are produced by domestic establishments outside that sector or imported.


    Construction Industry Producer Price Indexes

    The Price Index of the Output of the General Construction Industry measures changes in prices of the output of ANZSIC subdivision 41 - general construction. Price indexes are also produced for each of the constituent groups and classes of this subdivision. These groups and classes are: the building construction group (411), which consists of the classes house construction (4111), residential building construction n.e.c. (4112) and non-residential building construction (4113); and the non-building construction group (412), with the class of road and bridge construction (4121). Road and bridge construction is the sole contributor to the index for non-building construction until coverage can be extended to include the class of non-building construction n.e.c. (4122), which consists of railways, telecommunications, electricity infrastructure, etc. Indexes are available for each state and territory and for the weighted average of the six states and territories. However, the index for non-building construction group (412) road and bridge construction (4121) is not available for Tasmania, Northern Territory or ACT.

    The input index measures changes in prices of materials used in house building, where a house is defined as a detached building predominantly used for long-term residential purposes and consisting of only one dwelling unit. ANZSIC class 4111 (house construction) approximates the industry scope of the index. This index does not cover alterations, additions, renovations and repairs. It relates to the statistical division for each State capital city.

    Mining Industry Producer Price Indexes

    The items included in the indexes reflect the value of materials used in the operation of open cut and underground coal mines in Australia during 1999-2000.

    Service Industries Producer Price Indexes

    The transport (freight) & storage division and property & business services division indexes measure changes in prices of services provided by establishments classified respectively to ANZSIC division I, transport (freight) & storage and ANZSIC division L, property & business services.

    Included are indexes for each of the ANZSIC subdivisions, groups and most classes. Transport indexes presented cover freight and services to transport activities only, i.e. passenger transport is excluded.

    Stage of Production Price Producer Indexes

    Producer price indexes conventionally relate to the output of domestic industries, at basic prices, either inclusive or exclusive of exports. As the main focus is on domestic inflation, exports are excluded from the headline SOP series 'Final (Stage 3) commodities'.

    Imports have also been incorporated within the framework, recognising that they represent an important potential source of inflationary pressure.

    In concept, the SOP indexes incorporate all flows of goods and services. However, currently there is limited coverage of service industries and the construction industry by the producer price indexes (see sections on construction industry and service industries producer price indexes below).

    Price indexes for most transport and storage services (division I of ANZSIC) and property and business services (division L of ANZSIC) industries have been included in the SOP framework. However, price series for most Final (Stage 3) consumer services are not currently available on a sufficiently timely basis to allow their inclusion in the indexes. This has the effect of decreasing the relative weight of consumer items versus capital items in the final stage. It is intended to introduce additional services price series as they become available, along with the consequential weight changes.

    Index coverage for the construction industry (division E of ANZSIC) is currently limited to the output of the following ANZSIC classes:
    • 4111 House construction;
    • 4112 Residential building construction n.e.c.;
    • 4113 Non-residential building construction; and
    • 4121 Road and bridge construction.

    International Trade Price Indexes

    International trade price indexes measure changes in the prices of imports of merchandise that are landed in Australia each quarter-the import price index, and exports of merchandise that are shipped from Australia each quarter-the export price index.

    The import price index excludes the following items (representing approximately 5% of the value of merchandise imported during the weighting period) because of the inherent difficulties in pricing the items to constant quality:
    • live animals (not for food)
    • jewellery and other articles of precious metal n.e.s.
    • military equipment
    • commodities not classified according to kind
    • works of art, collectors' pieces, antiques
    • ships of various types.

    The export price index includes re-exports of merchandise (i.e. goods which are imported into Australia and exported at a later date without physical transformation).



    DATA DETAIL

    Conceptual framework

    Producer Price Indexes Concepts in General

    Output and input indexes

    Producer price indexes can be constructed as either output measures or input measures. Output indexes measure changes in the prices of sales by a defined sector of the economy while input indexes measure changes in the prices of purchases by a particular economic sector.

    Valuation basis

    The valuation basis for the transactions covered by an output index is basic prices, defined as the amount received by the producer exclusive of any taxes on products and transport and trade margins (i.e. the pricing point is ex-factory, ex-farm, ex-service provider, etc.).

    On the other hand, an input index has a valuation basis of purchasers' prices, defined as the amount paid by the purchaser inclusive of any non-deductible taxes on products and transport and trade margins (i.e. the prices recorded in the index should be those relating to delivered into store, delivered on site, etc.).

    In reality, industry practice may mean that it is sometimes necessary to diverge from the conceptual ideal in order to obtain actual transaction prices. For example, although the pricing point for the output index Price Indexes of Articles Produced by Manufacturing Industries is ex-factory, in cases where costs such as handling and distribution are built into the manufacturer's selling price, they will be included in the index.

    Similarly, for input indexes such as the Price Index of Materials Used In House Building, which has a pricing point of delivered on site, it has sometimes been necessary to use the nearest actual transaction price available, e.g. prices of materials supplied and fixed.

    The GST is excluded from all the prices recorded in the current producer price indexes because, in the main, it is deductible on business-to-business transactions. In the case of future service industry output indexes relating to business-to-household transactions, the GST will also be excluded because the pricing basis will be basic prices (i.e. exclusive of product taxes).

    Items and weights

    The indexes are fixed weighted indexes of the Laspeyres form. The list of items and the weights are updated periodically to ensure they remain representative. New index series compiled using updated weights are linked to the previous series to maintain a continuous series. Broad level weights are derived from an analysis of the latest available input-output tables as well as other ABS and industry sources.

    Where prices of items are expected to move in a similar way, many of the directly priced items carry not only their own weight but also the weight of similar commodities.

    Price measurement

    The main sources of ongoing price data are samples of businesses. The samples can relate to either buyers or sellers, or a combination of both. The choice is influenced by the pricing point of the index (output or input) and practical considerations such as the relative degree of concentration of buyers, and of sellers, and the implications for sample sizes and costs.

    The main pricing methodology used is specification pricing, under which a manageable sample of precisely specified products is selected, in consultation with each reporting business, for repeat pricing. In specifying the products, care is taken to ensure that they are fully defined in terms of all the characteristics which influence their transaction prices. As such, all the relevant technical characteristics need to be described (e.g. make, model, features) along with the unit of sale, type of packaging, conditions of sale (e.g. delivered, payment within 30 days), etc.

    When the quality or the specifications of an item being priced change over time, adjustments are made to the reported prices so that the index captures only pure price change. That is, any element of price change attributable to a change in quality is removed. If there is an increase (decrease) in the quality of an item, then the price is adjusted downwards (upwards) to reflect the 'worth' of the quality change. This technique is known as pricing to constant quality.

    Another very important consideration in establishing and maintaining price collections is to ensure that the prices reported are actual market transaction prices. That is, they must reflect the net prices received (or paid) after taking into account all discounts applied to the transactions whether they be volume discounts, settlement discounts or competitive price cutting discounts which are likely to fluctuate with market conditions.

    Any rebates also need to be considered. The collection of nominal list prices, or book prices, is unlikely to yield reliable price indexes and could result in quite misleading results if fluctuations in transaction prices are not captured. The ABS therefore asks respondent businesses to report details of the discounts they offer so that actual transaction prices can be calculated. In addition, as many different types of discounts apply to business-to-business transactions (see paragraph 14), considerable effort is put into monitoring discount practices in order to identify changes to existing discounts and the introduction of new ones.

    Specification pricing is not feasible in cases where the products are unique and not reproduced over time, e.g. construction industry output and many of the customised business services. As a result alternative pricing techniques need to be used, often involving compromise. Some of the approaches adopted include the use of model pricing, collecting unit values for reasonably homogeneous components of a good or service, input pricing and collecting charge-out rates (e.g. for a legal service).

    Stage of Production Producer Price Indexes

    Pricing basis

    In concept the valuation basis of the Stage of Production (SOP) indexes is basic prices. However, the use of component series from existing ABS price collections in some cases results in the pricing basis diverging from this ideal. For example, imports are priced on a 'free-on-board' (f.o.b) basis, not 'cost, insurance, freight' (c.i.f), which approximates basic prices.

    The indexes are calculated on the reference base 1998-99 = 100.0.

    The SOP concept

    The indexes are compiled using the SOP concept. Under this concept flows of commodities are categorised according to their economic destination on a sequential basis along the production chain. The basis for the categorisation is the Australian input-output tables (1996-97). The primary categorisation is between final commodities (i.e. commodities destined for final consumption, capital formation or export) and non-final commodities (i.e. commodities that flow into intermediate consumption for further processing).

    This initial breakdown of the commodity flows into final and non-final represents a useful economic dissection of producers' transactions. However, the non-final commodities can flow into the production of both final and other non-final commodities. Therefore, to aid analysis, the non-final commodity flows have been divided on a sequential basis between Stage 1 (or preliminary) commodities and Stage 2 (or intermediate) commodities as illustrated below. This approach results in three separate stages of production.

Diagram: SOP non-final

    The three stages are not aggregated in order to avoid the potential distorting effects that may result from multiple counting of changes in transaction prices as commodities flow through different production processes.

    Under this framework, preliminary (Stage 1) commodities are used in the production of intermediate (Stage 2) commodities; in turn intermediate (Stage 2) commodities flow into the production of final (Stage 3) commodities.

    The framework allows for analyses of price change as commodities flow through production processes. Price changes for earlier stages of production may be indicators of possible future price changes for later stages.

    Transaction flow approach

    The ABS has adopted a transaction flow approach in disaggregating commodity supply into the various production stages. This approach means that the assignment of a commodity to a stage is based on the proximity of its use in final demand.

    Alternative degree of fabrication or principal destination approaches are employed by statistical agencies in some other countries. These approaches result in the allocation of particular commodities to one, and only one, stage. This would present particular problems for Australia due to the openness of the economy, with exports (and imports) equivalent to about 20% of gross domestic product. Commodities such as wheat, wool, and iron ore are exported in large volumes as well as being further processed locally. The allocation of such commodities to a single stage would be very arbitrary by necessity.

    Adopting the transaction flow approach means, for example, that exported wheat and domestically used wheat are treated as different commodities for index construction purposes. Under this approach commodities transactions can be allocated to more than one stage. Exported wheat is treated as a final (Stage 3) commodity while wheat used domestically to make the flour used in bread production is considered to be a preliminary (Stage 1) commodity. Similarly, commodities such as energy and containers appear under all three categories.

    Scope and coverage

    Producer price indexes conventionally relate to the output of domestic industries, at basic prices, either inclusive or exclusive of exports. As the main focus is on domestic inflation, exports are excluded from the headline SOP series 'Final (Stage 3) commodities'.

    Imports have also been incorporated within the framework, recognising that they represent an important potential source of inflationary pressure.

    In concept, the SOP indexes incorporate all flows of goods and services. However, currently there is limited coverage of service industries and the construction industry by the producer price indexes (see sections on construction industry and service industries producer price indexes below).

    Price indexes for most transport and storage services (division I of ANZSIC) and property and business services (division L of ANZSIC) industries have been included in the SOP framework. However, price series for most Final (Stage 3) consumer services are not currently available on a sufficiently timely basis to allow their inclusion in the indexes. This has the effect of decreasing the relative weight of consumer items versus capital items in the final stage. It is intended to introduce additional services price series as they become available, along with the consequential weight changes.

    Index coverage for the construction industry (division E of ANZSIC) is currently limited to the output of the following ANZSIC classes:
    • 4111 House construction;
    • 4112 Residential building construction n.e.c.;
    • 4113 Non-residential building construction; and
    • 4121 Road and bridge construction.
    Items and weights

    The items included in the indexes reflect the values of commodity flows, for both domestic supply and imports, allocated to stages based on an analysis of detailed 1996-97 input-output tables.


    Manufacturing Industries Producer Price Indexes

    The manufacturing industry producer price indexes relate to the outputs (i.e. articles produced) and inputs (i.e. materials used) of establishments classified to designated sectors of the Australian manufacturing industry. They are important sources of data for the SOP indexes.

    The valuation basis for the Price Indexes of Articles Produced by Manufacturing Industries is basic prices. The valuation basis for the Price Indexes of Materials Used in Manufacturing Industries is purchasers' prices. Therefore, as far as possible, ex-factory prices are included in the output index and delivered into factory prices in the input index.

    All of the manufacturing indexes are calculated on the reference base 1989-90=100.0.

    Scope

    The manufacturing indexes are constructed on a net sector basis with intra-sector transactions netted out. The scope of the output index is therefore restricted to transactions in articles produced by the defined sector of Australian manufacturing industry that are sold or transferred to domestic establishments outside that sector, or used as capital equipment, or exported. The scope of the input index relates to transactions in materials used in the defined sector of Australian manufacturing industry that are produced by domestic establishments outside that sector or imported.

    Classification

    The manufacturing division output index measures changes in prices of articles produced by establishments classified to ANZSIC division C, Manufacturing, that are sold or transferred to domestic establishments outside the manufacturing division for intermediate use, or used as capital equipment, or exported. It excludes intermediate transactions in articles produced by establishments within the manufacturing division and sold or transferred to other establishments within the manufacturing division for further processing.

    Similarly, the manufacturing division input index measures changes in prices of materials used by establishments classified to ANZSIC division C, Manufacturing, that have been purchased or transferred in from domestic establishments outside the manufacturing division or imported. It excludes intermediate transactions in materials produced by establishments within the manufacturing division and sold or transferred to other establishments within the manufacturing division for further processing.

    An advantage of the net sector approach over the alternative gross sector approach (under which the intra-sector transactions would be in-scope) is that it avoids the potential distorting effects that may result from multiple counting of changes in transaction prices as commodities flow through different production processes.

    On the other hand, although conceptually valid, the exclusion of the internal intermediate transactions from the net sector manufacturing division indexes results in incomplete coverage of the targeted sector of the economy. In order to increase coverage, while still avoiding the multiple counting issue, independent net sector measures have been constructed for ANZSIC manufacturing subdivisions and groups. While having intermediate transactions between different manufacturers within a given subdivision or group netted out, intermediate transactions with manufacturers in other subdivisions/groups are in-scope.

    The output indexes for ANZSIC subdivisions and groups measure changes in prices of articles produced by establishments classified to each defined ANZSIC manufacturing sector which are sold or transferred to establishments outside that sector. These exclude intermediate transactions in articles produced by establishments within the specific sector and sold or transferred to other establishments in the same sector for further processing.

    Similarly, the input indexes for ANZSIC subdivisions and groups measure changes in prices of materials used by establishments classified to each defined ANZSIC manufacturing sector which are purchased or transferred in from establishments outside that sector. These exclude intermediate transactions in materials produced by establishments within the specific sector and sold or transferred to other establishments in the same sector for further processing.

    It is important to note that the manufacturing division output and input indexes, and the corresponding subdivision/group indexes, are independent constructs. As such, a division index cannot be derived by simply weighting together the separate subdivision and group indexes as the latter net sector indexes are not a straightforward decomposition of the broader net sector index.

    Items and weights

    The items included in the manufacturing indexes reflect the values of articles produced and materials used based on an analysis of detailed input-output tables; 1993-94 for the output indexes and 1989-90 for the input indexes.

    Construction Industry Producer Price Indexes

    The construction industry producer price indexes relate to the outputs (e.g. buildings) and the inputs (i.e. materials used) of establishments classified to designated sectors of the Australian construction industry. They are important sources of data for the SOP index.The pricing basis is basic prices for the output indexes and purchasers' prices for the input indexes. Therefore, as far as possible, builders' selling prices are reflected in the output index and delivered on site prices in the input indexes.

    The output indexes are calculated on the reference base 1998-99=100.0 and the input indexes on the reference base 1989-90=100.0.

    Scope

    The Price Index of the Output of the General Construction Industry measures changes in prices of the output of ANZSIC subdivision 41 - general construction. Price indexes are also produced for each of the constituent groups and classes of this subdivision. These groups and classes are: the building construction group (411), which consists of the classes house construction (4111), residential building construction n.e.c. (4112) and non-residential building construction (4113); and the non-building construction group (412), with the class of road and bridge construction (4121). Road and bridge construction is the sole contributor to the index for non-building construction until coverage can be extended to include the class of non-building construction n.e.c. (4122), which consists of railways, telecommunications, electricity infrastructure, etc. Indexes are available for each state and territory and for the weighted average of the six states and territories. However, the index for non-building construction group (412) road and bridge construction (4121) is not available for Tasmania, Northern Territory or ACT.

    The input index measures changes in prices of materials used in house building, where a house is defined as a detached building predominantly used for long-term residential purposes and consisting of only one dwelling unit. ANZSIC class 4111 (house construction) approximates the industry scope of the index. This index does not cover alterations, additions, renovations and repairs. It relates to the statistical division for each State capital city.

    Items and weights

    The items included in the output indexes are chosen on the basis of work done, categorised by building function or type of construction and State of activity, as recorded in the ABS Construction Activity statistics for the five years ending 1998-99.

    The items and weights for the price index of materials used in house building were derived from reported quantities of each material used in selected representative houses in the three years ending 2002-03. The weighting pattern for each capital city index will reflect variations in prices for the cities as applied to an Australian average basket of house building materials, with some allowance for city specific building practices e.g. the differential use of steel and timber materials in Perth and Adelaide compared with the other capital cities.

    Mining Industry Producer Price Indexes

    The pricing basis of the Materials Used in Coal Mining index is purchasers' prices) and, as far as possible, the prices included in the index for items are delivered to the mine site or to the primary storage area for a group of mines.

    The items included in the indexes reflect the value of materials used in the operation of open cut and underground coal mines in Australia during 1999-2000.

    The indexes are calculated on the reference base 1989-90=100.0.

    Service Industries Producer Price Indexes

    Price indexes are available for the output of transport (freight) & storage and property & business services divisions of ANZSIC. The pricing basis of the indexes is basic prices and so the prices used in the index relate to the amount received by the service provider. The indexes are important sources of data for the SOP indexes. The index numbers are calculated on the reference base 1998-99=100.0.

    Scope

    The transport (freight) & storage division and property & business services division indexes measure changes in prices of services provided by establishments classified respectively to ANZSIC division I, transport (freight) & storage and ANZSIC division L, property & business services.

    Included are indexes for each of the ANZSIC subdivisions, groups and most classes. Transport indexes presented cover freight and services to transport activities only, i.e. passenger transport is excluded.

    Items and weights

    ANZSIC class indexes are aggregated to the relevant group, subdivision and division using weights derived from 1996-97 input-output domestic production values, in combination with data from other ABS surveys and industry sources. Where ANZSIC class indexes have not yet been developed, their weight is spread proportionately across the relevant group, subdivision or group of subdivisions dependent on an assessment of what is most appropriate given the activities of the particular class.

    Price measurement

    The development of these new price collections has involved a wide range of diverse industries with different measurement problems. Accordingly, extensive consultation with industry associations and individual businesses has been undertaken to determine the most viable approach, on a case-by-case basis.

    Characteristics found within the services sector of the economy have complicated the task of price measurement. The tendency within many industries to provide unique, one-off services tailored to the needs of individual customers has posed difficulties in establishing continuity of pricing to constant quality.

    The 'bundling' of a range of different component services within the one transaction or contract has required investigation of the feasibility of 'unbundling', that is, obtaining separate prices for each of the components of the total service. Where this has not proven to be feasible, the whole service bundle has been priced in total.

    Respondent businesses are asked to report details of any discounts they offer so that actual transactions prices can be calculated. However, as discounts are sometimes negotiated between individual buyers and sellers in relation to particular transactions, identifying discounts has not always been straightforward.

    The deregulation of some service industries leads to structural changes and more complex pricing practices. To deal with this, samples are continually updated to incorporate new businesses and pricing methodologies are reviewed over time.


    International Trade Price Indexes

    International trade price indexes measure changes in the prices of imports of merchandise that are landed in Australia each quarter-the import price index, and exports of merchandise that are shipped from Australia each quarter-the export price index.

    The indexes are calculated on the reference base 1989-90=100.0.

    Scope

    The import price index excludes the following items (representing approximately 5% of the value of merchandise imported during the weighting period) because of the inherent difficulties in pricing the items to constant quality:
    • live animals (not for food)
    • jewellery and other articles of precious metal n.e.s.
    • military equipment
    • commodities not classified according to kind
    • works of art, collectors' pieces, antiques
    • ships of various types.

    The export price index includes re-exports of merchandise (i.e. goods which are imported into Australia and exported at a later date without physical transformation).

    Price measurement

    In general, prices of individual shipments are obtained from major importers and exporters of the selected items and relate to the quarter in which the imported goods physically arrive in Australia and the exported goods physically leave Australia.

    Imports are priced on a 'free on board' (f.o.b.), country of origin basis. Therefore freight and insurance charges involved in shipping goods from foreign to Australian ports are excluded from the prices used in the index, as are Australian import duties and taxes. Similarly, exports are priced on a f.o.b. basis at the main Australian ports of export. Exports are exempt from taxes on products.

    As the prices used in the indexes are expressed in Australian currency, changes in the relative value of the Australian dollar and overseas currencies can have a direct impact on price movements for the many commodities that are bought and sold in currencies other than Australian dollars. Prices reported in a foreign currency are converted to Australian dollars using relevant exchange rates. Where imports or exports are transacted in prices expressed in terms of a foreign currency and forward exchange cover is used, the prices in the indexes exclude the forward exchange cover.

    The main pricing methodology used is specification pricing, under which a manageable sample of precisely specified products is selected, in consultation with each reporting business, for repeat pricing. In specifying the products, care is taken to ensure that they are fully defined in terms of all the characteristics which influence their transaction prices. As such, all the relevant technical characteristics need to be described (e.g. make, model, features) along with the unit of sale, type of packaging, conditions of sale (e.g. delivered, payment within 30 days), etc. The goods are also specified by country and market in order to lessen the impact of price variations attributable solely to changes over time in the mix of countries, or markets.

    When the quality or specifications of an item being priced change over time, adjustments are made to the reported prices so that the index captures only pure price change. That is, any element of price change attributable to a change in quality is removed. If there is an increase (decrease) in the quality of an item, then the price index is adjusted downwards (upwards) to reflect the 'worth' of the quality change. This technique is known as pricing to constant quality.

    Wherever possible, prices from volume selling products being traded with predominant countries, or markets, are obtained to ensure specifications have a good chance of being re-priced over time and index series are representative of overall price movements. Individual product weights and weights between markets and countries are regularly reviewed to keep the indexes up to date.

    Items and weights

    The import price index and export price index are annually reweighted chained Laspeyres indexes. This method of weighting was introduced in the September quarter 2000 and replaces the 'fixed-base' method of weighting in which the weighting patterns are updated infrequently (generally once every 5 or 10 years).

    The annual reweighting and chaining process involves a number of steps in order to provide new weights each year. Each September quarter the weights of the import price index are updated to reflect the average value of merchandise imports landed in Australia in the previous financial year. This differs slightly from the export price index where the weights are updated in the September quarter of each year and are derived from the average value of export items during the two previous financial years, due to the greater volatility associated with the value of export items. The weights are revalued to reflect link period (June quarter of the latest year) price levels; this means, for example, that in the September quarter 2005, the weights for the import price index are effectively determined using quantities from 2004-05 and prices from June quarter 2005. Indexes derived by using the new weights for the September quarter 2005 are then linked to the already published June quarter 2005 (link period) levels which were derived using the previous series weights. Using this methodology, long-term chain linked series can be constructed over time on a consistent reference base for continuity and user convenience, but using annually refreshed weights. The reference base for each index series continues to be 1989-90=100 even though the weights are being updated each year.

    The commodities directly represented in each index (the index items) are selected on the basis of the significance of their import and export values in relevant weighting period. All significant commodities were selected for pricing. The weights for minor commodities which are not directly priced are included with those of comparable directly priced items whose prices are likely to move in a similar way.

    Main outputs
    Publications

    Producer Price Indexes, Australia (6427.0) - Contains a range of producer price indexes. Firstly, economy-wide indexes are presented within a Stage of Production (SOP) framework, followed by a set of partial, stand-alone measures relating to specific industry sectors of the economy (selected manufacturing, construction, mining and service industries).

    International Trade Price Indexes, Australia (6457.0) - Contains indexes measuring changes in the prices of imports of merchandise that are landed in Australia each quarter (the Import Price Index), and exports of merchandise that are shipped from Australia each quarter (the Export Price Index).

    ABS web site

    The current quarter key figures, notes, analyses and comments and Explanatory Notes are available from the 'Summary' tab of the 6427.0 and 6457.0 pages on the ABS Website.

    A .pdf version of the publication and time series spreadsheets for each of the publication tables and a number of unpublished indexes can be downloaded free of charge from the 'Details' tab of the relevant index pages.

    Classifications
    As far as possible the producer price industry sector indexes have been constructed in accordance with the Australian and New Zealand Standard Industrial Classification (ANZSIC).

    The main classification used for both the import and export price indexes is the Standard International Trade Classification (SITC), Revision 3.

    The import price index is also presented by End Use Class of the United Nations' Classification by Broad Economic Categories (BEC) that have been disaggregated into balance of payments groupings; the Harmonized Tariff Item Statistical Classification (HTISC) and ANZSIC.

    The export price index is also presented by balance of payments export groupings; the Australian Harmonised Export Commodity Classification (AHECC) and by ANZSIC.

    Other concepts (summary)
    n/a

    GEOGRAPHIC DETAIL
    Australia
    New South Wales
    Victoria
    Queensland
    South Australia
    Western Australia
    Tasmania
    Northern Territory
    ACT

    Comments and/or Other Regions
    Most of the PPIs and ITPI are only available at the national level. However, the output of general construction indexes are also available by state and the materials used in house building are also available for the six state capital cities.

    COLLECTION FREQUENCY
    Quarterly

    Frequency comments


    COLLECTION HISTORY

    The first producer price indexes
    The first price index of this kind compiled by the ABS was the Melbourne Wholesale Price Index, which was introduced in 1912 with index numbers compiled from 1861. Prices were extracted from newspapers and trade publications, and index numbers were compiled up to 1961. That index related chiefly to basic materials and foods, weighted in accordance with consumption in about the year 1910. Neither the list of items nor the weighting was varied during the life of the index. A description of the index and a list of the items included was last published in Labour Report No. 38, 1949.

    The next index published was the Wholesale Price (Basic Materials and Foodstuffs) Index, which was introduced in 1939 with index numbers available for the period from 1928. The index, which was compiled until 1970, related to commodities in their basic or primary form. Prices were obtained as near as possible to the point where they made their first effective impact on the local price structure. With few exceptions, prices were obtained from Melbourne sources. The weights were based on estimates of the average annual consumption of the commodities in Australia during the period 1928-29 to 1934-35 inclusive. A list of the commodities included and other information concerning the index were last published in Labour Report No. 53, 1967.

    Manufacturing Industries Producer Price Indexes

    The price indexes of articles produced by manufacturing industries were first published in June 1976 in the Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0), with monthly indexes compiled from July 1968. The indexes were reviewed in 1990 with a second series introduced from May 1990.

    The frequency of these indexes was changed from monthly to quarterly from September quarter 1997.

    These indexes were again reviewed in 2000. Commencing with the September quarter 2000 the presentation of these indexes was changed to reflect updated weighting patterns and the adoption of the Australian and New Zealand Standard Industrial Classification, 1993 (ANZSIC).

    The Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0) was replaced with Producer Price Indexes, Australia (cat. no. 6427.0) in the June quarter 2001. The latter publication contains integrated key series from former price index publications to present an economy wide framework for producer price indexes, with the stage of production (SOP) indexes as the headline indicators.

    The price indexes of materials used in manufacturing industries were first published in April 1975 in Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0), with monthly indexes compiled from July 1968. The indexes were reviewed in 1985, with a second series introduced from December 1985. The indexes were reviewed again in 1996 introducing several changes to the indexes, that included changing the underlying classification of the indexes from the Australian Standard Industrial Classification, 1983 (ASIC), to ANZSIC.

    The frequency of these indexes was changed from monthly to quarterly from September quarter 1997.

    The Price Indexes of Materials Used in Manufacturing Industries, Australia (Cat. no. 6411.0) was discontinued and replaced with the Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

    Price indexes for Copper Materials Used in the Manufacture of Electrical Equipment and Metallic Materials Used in the Fabricated Metal Products Industry are produced as subsets of the price indexes of materials used in manufacturing industries that are separately available and published in Producer Price Indexes, Australia (cat. no. 6427.0).

    Construction Industry Producer Price Indexes

    A price index for the output of the building industry (ANZSIC group 411), the aggregate of the indexes for the three ANZSIC classes house construction (4111), residential building construction n.e.c. (4112) and non-residential building construction (4113), was first published in the June quarter 2001 issue of Producer Price Indexes, Australia (cat. no. 6427.0) with quarterly indexes compiled from September quarter 1996. This was expanded in September quarter 2002 to include non-building construction (ANZSIC group 412) and road and bridge construction (4121) together with a combined index for the output of general construction (ANZSIC subdivision 41) compiled from September quarter 1997.

    State level indexes for the output of general construction and its constituent ANZSIC classes were first made available in March quarter 2006.

    The price index of materials used in house building was first published in September 1970 in the Price Index of Materials Used in House Building, Six State Capital Cities (cat. no. 6408.0) with monthly indexes compiled from July 1966. The index was reviewed in 1986 and again in December 1995. This review saw the index presented on a reference base of 1989-90 =100.0, and was linked to the previous series.
    The index has been compiled and released on a quarterly basis since September quarter 1997.

    The Price Indexes of Materials Used in House Building, Six State Capital Cities (cat. no. 6408.0) was discontinued and replaced with the Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

    In December 2005, the index was again reviewed. This review saw the composition of the index changed to reflect building material usage observed in the three years ending 2002-03. Capital city weights were additionally updated to reflect building patterns observed in the six state capitals in 2003-04.

    Mining Industry Producer Price Indexes

    The price index of materials used in coal mining was first published in February 1989 in Price Indexes of Materials Used in Coal Mining, Australia (cat. no. 6415.0) with monthly indexes compiled from July 1988. There are two indexes covering underground and open cut coal mining.

    The indexes have been compiled and released on a quarterly basis since September quarter 1997.

    The Price Indexes of Materials Used in Coal Mining, Australia (cat. no. 6415.0) was discontinued and replaced with the Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

    Service Industries Producer Price Indexes

    Price indexes for the output of service industries are a relatively new development and have to date only been constructed for a subset of service industries. Quarterly price index numbers for service industries were first published in March quarter 2000 for the Transport (Freight) and Storage Industries (ANZSIC Division I) and the Property and Business Services Industries (ANZSIC Division L) in Producer Price Indexes for Selected Service Industries, Australia (cat. no 6423.0), with most indexes compiled from September quarer 1998.

    The Producer Price Indexes for Selected Service Industries, Australia (cat. no 6423.0) was discontinued and replaced with the Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

    The price indexes for the output of service industries were reviewed in 2002 resulting in a significant improvement in coverage of these price indexes.

    Stage of Production Producer Price Indexes

    Producer price index numbers for the supply of commodities (goods and services) to the Australian economy in a "stage of production" (SOP) framework were first published in Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0). The stage of production framework represents an important element of the strategy for the systematic analysis of inflation. Commencing in July 2000, this publication presented price indexes compiled from September 1998. The SOP index model brings together the range of detailed price data contained in the separate indexes to enhance the analytical value of the data. The SOP framework is based on an economic categorisation of transactions according to their sequencing in the production chain. The weighting patterns of the indexes were initially based on the 1994-95 input-output tables, with a reference base of 1998-99 = 100.0.

    The Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0) was discontinued and replaced with the Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

    The SOP indexes were reviewed in 2002 with a second series introduced from December quarter 2002. The weighting patterns of the second series (the current series) are based on the 1996-97 input-output tables.

    International Trade Price Indexes

    Export Price Index

    An index of export prices has been published since 1901. The first index was compiled annually from 1901 to 1916-17 as a current weighted unit value index. The method of calculation was changed in 1918 to incorporate fixed weights. An index on this basis was published for the years 1897 to 1929-30. An index of export prices was not published again until 1937 when two series were introduced. One index used fixed weights and the other changing weights. These indexes used actual export prices in place of unit values. These indexes were compiled until 1962.

    The next index was introduced in August 1962. This index was a fixed weights index with a reference base of 1959-60 = 100.0. This index was compiled until July 1969 when a new interim index, using weights based on 1969-70, was linked to this series. This index was published until June 1979 when it was replaced by the first series of the current Export Price Index. This first series was compiled on a monthly basis with a reference base of 1974-75 =100.0 and a weighting pattern based on the value of exports for the three years to June 1997. The index was reviewed in 1990 and a new series, on a reference base of 1989-90 = 100.0 and weights based on 1988-89, was introduced in September 1990 and published in Export Price Index, Australia (cat. no. 6405.0). The indexes have been compiled and released on a quarterly basis since September quarter 1997.

    The Export Price Index, Australia, was reviewed again in 1999 with a new series (the current series) introduced from September quarter 2000. As a result of this review, the 'fixed-base' method of weighting was changed to an annually re-weighted and chained method. The weights are revised in the September quarter of each year and are derived from the average value of export items during the two previous financial years. The reference base remains 1989-90 = 100.0.

    Import Price Index

    Import price measures in Australia have a considerable history, with an import price index published by the Reserve Bank of Australia (RBA) from 1928 until September 1982. The first index of import prices produced by the ABS was introduced in May 1983, through the publication Import Price Index, Australia (cat. no. 6414.0). This index was compiled quarterly from September quarter 1981 until June quarter 1991 (on a reference base of 1981-82 = 100.0).

    A re-weighted index of import prices was introduced in September 1991 with index numbers compiled monthly from April 1991 until June 1997. This series had a reference base of 1989-90 = 100.0. The weights were based on the average value of merchandise imports landed in Australia during 1988-89 and 1989-90.

    The indexes have been compiled and released on a quarterly basis since September quarter 1997.

    In 1999, a review of the index was undertaken with the findings published in Information Paper: Review of the Import Price Index and Export Price Index (cat. no. 6424.0). One of the results of the review was a move to an annually re-weighted chained index, whereby each September quarter the weights of the index are updated to reflect the average value of merchandise imports landed in Australia in the previous financial year. The reference base of the index continues to be 1989-90 = 100.0.

    In June quarter 2001 both Import Price Index, Australia (cat. no. 6414.0) and Export Price Index, Australia (cat. no. 6405.0) were replaced by a single publication International Trade Price Indexes, Australia (cat. no. 6457.0) which covers both the import price index and the export price index.


    DATA AVAILABILITY
    Yes

    Data availability comments



    DATE OF LAST UPDATE FOR THIS DOCUMENT
    24/05/2010 11:13 AM



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