Producer Prices (Survey of)

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    NAME OF ORGANISATION
    Australian Bureau of Statistics (ABS)

    OVERVIEW

    The quarterly Australian Producer Price Indexes (PPIs) measure the average change in the prices of products (goods and services) as they either enter or leave the production process. The quarterly Australian International Trade Price Indexes (ITPIs) measure the average changes in the prices paid for imports and exports of products.

    The ABS compiles a suite of quarterly input and output price indexes for different industries and industry groupings of the Australian economy. These measures show both the changes in the prices of final products, as well as the changes in prices of inputs used to produce the final products. The following indexes are the major PPIs and ITPIs released by the ABS:

    • Stage of Production (SOP) Producer Price Indexes

      Presented by stage of production to final demand, industry of origin and destination within the economy

    • Manufacturing Industries Producer Price Indexes

      Input to the manufacturing industries

      Output to the manufacturing industries

  • Construction Industries Producer Price Indexes

      Input to the house construction industry

      Output of the construction industries

  • Mining Industries Producer Price Indexes

      Input to the coal mining industry

  • Service Industries Producer Price Indexes

      Output of the accommodation and food services industries

      Output of the transport, postal and warehousing industries

      Output of the information media and telecommunications industries

      Output of the rental, hiring and real estate services industries

      Output of the professional, scientific and technical services industries

      Output of the administrative and support services industries

      Output of the public administration and safety industries

      Output of the other services industries

      Output of the education and training industries

  • International trade price indexes

      Import Price Index (IPI) - an input price index

      Export Price Index (EPI) - an output index.





    PURPOSE
    The principal purpose of the Producer Price Indexes (PPIs) and International Trade Price Indexes ( ITPIs) is to measure inflation by industry to support the compilation of the National Accounts and the Balance of Payments. In the compilation of the National Accounts and the Balance of Payments, components of PPIs and ITPIs are used as deflators to produce chain volume measures. 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. In summary, 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

    The ABS PPIs measure price changes in two ways:
    (i) The input price indexes measure the prices producers pay for products consumed in production, valued at purchasers’ prices;
    (ii) The output price indexes measure the prices producers receive for the sale of their products, valued at basic prices.

    Therefore there are two populations of interest for the ABS PPIs – the transactions that result in the purchase of products to be consumed in production, and the sale of products by producers.

    The ABS output PPIs measure changes in prices received by the manufacturing, construction, and services industries. These indexes measure the change in prices received by domestic establishments regardless of whether the sale of the product was to a domestic purchaser or as an export.

    The ABS input PPIs measure changes in prices paid by the manufacturing and construction industries. These indexes measure the change in prices paid by domestic establishments regardless of whether the purchase was of a domestically produced product or as an import.

    The ITPIs measure the change in prices of merchandise that crosses the Australian customs frontier. The populations of interest for these price indexes are all imported products (for the Import Price Index) and all exported products (for the Export Price Index). Neither the Export Price Index nor the Import Price Index attempts to measure the change in price of internationally traded services.

    Most countries, including Australia, define non–market activities as falling outside the scope of PPIs. Examples of these activities include general government services such as national defence and the value of owner–occupied dwellings.

    Whole of economy measures
    The ABS produces a set of economy wide price indexes using a Stage of Production (SOP) approach, which in concept measures outputs at basic prices. As the focus in the use of the PPIs is on domestic inflation, exports are excluded from the headline SOP series final demand products. Imports have been incorporated within the framework, recognising that they represent an important potential source of inflationary pressure (imports are allocated to the competing domestic industry of origin but measured on an f.o.b. pricing basis).



    DATA DETAIL

    Conceptual framework

    A Producer Price Index (PPI) can be described as an index designed to measure the average change in the price of products (i.e. goods and services) as they enter or leave the production process. PPIs fall into two categories: indexes which refer to input prices (that is, at purchasers' prices), and those which refer to output prices (that is, at either basic or producers’ prices).

    An input PPI measures the average change in the prices of all products used by an industry for the production of their outputs. ABS examples of input price indexes include Input to the house construction industry and Input to the manufacturing industry.

    An output PPI measures the average change in the prices of all products produced by an industry that are sold or transferred within or outside that industry (for further processing, consumption, used as capital equipment, or exported). Examples of output price indexes include Output of the construction industries and Output of 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 measure the average change in the prices from one period to another. The PPI does not measure the value of production or the cost of production.


    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.).

    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.

    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).

    Information Paper: Producer and International Trade Price Indexes; Concepts, Sources and Methods, 2006 (cat. no. 6429.0) provides more detailed information on the PPI and ITPI conceptual framework. This publication is updated periodically.

    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.

    Time series spreadsheets for additional tables 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
    Major changes from September quarter 2012

    From September quarter 2012, an industry approach to defining and weighting the indexes was adopted, replacing the product approach. As a consequence, for input indexes, weights were changed to include all products used by establishments classified, according to ANZSIC 2006, to a specific industry. For output indexes, weights were changed to include all products produced by establishments classified to an industry. Index names were changed to reflect this different approach. More information can be found in the following publication: Information paper: Implementation of the Review of the Producer and International Trade Price Indexes, 2012 (cat. no. 6427.0.55.005)

    Manufacturing Industries Producer Price Indexes

    Output of the Manufacturing industries
    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.

    From September quarter 2012 the presentation of the indexes was changed to reflect the 2006 edition of ANZSIC and weights were updated to reflect 2007-08 Input-Output tables. The index; Articles produced by manufacturing industries, was renamed to Output of the manufacturing industries and presented on a reference period of 2011-12 = 100.0.

    Input to the manufacturing industries
    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.

    From September quarter 2012 the presentation of the indexes was changed to reflect the 2006 edition of ANZSIC and weights were updated to reflect 2007-08 Input-Output tables. The index Materials used in manufacturing industries was renamed to Input to the manufacturing Industries and presented on a reference period of 2011-12 = 100.0.

    Price indexes for Copper materials
    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 Input to the manufacturing Industries that are separately available and published in Producer Price Indexes, Australia (cat. no. 6427.0).

    Following the September 2012 review, two subsidiary indexes; Copper input to the other electrical equipment manufacturing industry and Metallic input to the fabricated metal product manufacturing industry, will be discontinued as from September 2013.


    Construction Industry Producer Price Indexes

    Output of the construction industries
    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.

    Input to the house construction industry
    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.

    From September quarter 2012, this index was renamed from Materials Used in House Building to Input to the house construction industry and re-referenced to 2011-12 = 100.0.


    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.

    From September quarter 2012, this index was renamed from Materials used in coal mining to Input to the coal mining industry and re-referenced to 2011-12 = 100.0.


    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 quarter 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.

    From September quarter 2012 coverage of the service industries price indexes increased further, with presentation of the indexes being changed to reflect ANZSIC 2006 and weights updated to reflect 2007-08 Input-Output tables. The indexes were re-referenced to 2011-12 = 100.0.


    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). Commencing in July 2000, this publication presented price indexes compiled from September 1998. 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 then reviewed in 2002 with a second series introduced from December quarter 2002. The weighting patterns of the second series were based on the 1996-97 input-output tables.

    The SOP indexes are useful for analysing inflation in the Australian economy or, more specifically, for studying how price change for inputs used to produce final products is passed through to the price of those final products. 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. As of September quarter 2012, the SOP indexes were reclassified to align with the updating of the ANZSIC from the 1993 to the 2006 edition. Implementation of the ANZSIC 2006 classification resulted in some restructuring and/or renaming of previous ANZSIC 1993 PPI series, discontinuation of series and introduction of some new series. The SOP stages were renamed to reflect the relationship of the stages of production to final demand:

    • Stage 3 (Final) becomes Final Demand i.e. Products consumed as Final Demand, with no further processing;
    • Stage 2 (Intermediate) becomes Intermediate Demand i.e. Products consumed as inputs into the production of Final Demand; and
    • Stage 1 (Preliminary) becomes Preliminary Demand i.e. Products consumed as inputs into the production of Intermediate Demand.


    Following the 2011 and 2012 review, a new series was introduced in the September quarter 2012 with a weighting pattern based on the 2007-08 Input-Output tables. The SOP time series was re-referenced to 2011-12 = 100.0.


    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 (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.

    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.

    In September quarter 2012 the ITPIs were re-referenced to 2011-12 = 100.0.


    DATA AVAILABILITY
    Yes

    Data availability comments



    DATE OF LAST UPDATE FOR THIS DOCUMENT
    29/05/2017 01:48 PM