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1301.0 - Year Book Australia, 2008  
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Contents >> Prices >> Producer price indexes

PRODUCER PRICE INDEXES

Producer price indexes measure changes in the prices received, or paid, by producers of commodities and providers of services. In Australia they generally relate to prices for goods and services as they affect businesses for example, the price of goods used as input to the manufacturing sector and the price of services provided by the property and business services industry. This contrasts with the CPI which measures changes in the retail prices paid by consumers, as explained earlier in this chapter. (For more information about producer price indexes, see Producer and International Trade Price Indexes: Concepts, Sources and Methods, 2006 (6429.0).)


Stage of production indexes

These producer price indexes are compiled using the 'stage of production' concept, in which flows of commodities are categorised according to their economic destination on a sequential basis along the production chain. The basis for the categorisation of commodities is the 1996-97 Australian Input-Output (I-O) tables (see the National accounts chapter). The principal categorisation is between final commodities (i.e. commodities destined for final consumption, capital formation or export) and those commodities that will be processed further (referred to as 'non-final' commodities).

The initial breakdown of 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 either final commodities or 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. This approach results in three separate stages of production.

In order to avoid multiple counting of transactions, the three stages are not aggregated.

Under this framework, preliminary (stage 1) commodities are used in the production of intermediate (stage 2) commodities which, in turn, 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.

The same commodity can be assigned to any of the stages of production depending on its destination. For example, bauxite is a preliminary good when it is used to produce alumina that is in turn used in the production of aluminium by an Australian producer. Where the alumina is exported the bauxite used in its production will be considered an intermediate good. Where the bauxite is exported it is deemed to be a final (stage 3) good.

Market transactions approach

The ABS has adopted a market transactions approach in disaggregating commodity supply into the various production stages. Under this approach, the individual transactions in a given commodity are assigned to the relevant stage, based on identification of the market(s) in which that commodity is transacted, which in turn is determined by the usage pattern of that commodity. A particular 'commodity', within the index classification system, can be assigned to more than one stage of production, on the basis of its usage pattern as identified in the I-O tables.

Index coverage

In concept, the scope of the stage of production indexes is economy-wide, relating to the output of all the goods and services industries. However, there are limits on the availability of price indexes for service industries, and coverage is currently restricted to the output of the accommodation, transport (freight) and storage, and property and business services sectors. Similarly, coverage of the construction sector is confined to indexes for the output of the following industries: house construction, residential building construction not elsewhere classified (n.e.c.), non-residential building construction, and road and bridge construction. Coverage of the stage of production indexes will be progressively extended as additional service and construction industry collections are established. Table 29.14 shows stage of production producer price indexes.
29.14 STAGE OF PRODUCTION PRODUCER PRICE INDEXES(a), By stage and source
Preliminary
Intermediate
Final (excl. exports)
Domestic
Imports
Total
Domestic
Imports
Total
Domestic
Imports
Total
2002-03
114.3
117.4
114.6
113.6
112.1
113.3
113.7
97.5
110.5
2003-04
115.3
105.6
113.8
114.9
99.9
112.7
118.5
86.7
112.0
2004-05
121.1
115.4
120.2
119.8
104.4
117.5
124.1
84.6
116.1
2005-06
129.5
129.5
129.4
126.7
112.6
124.7
129.5
84.5
120.4
2006-07
137.0
132.4
136.2
133.9
114.5
131.0
134.8
82.5
124.2
(a) Reference base year is 1998-99 = 100.0.
Source: Producer Price Indexes, Australia (6427.0).



Manufacturing industries indexes

Manufacturing industries 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.

Net sector basis

The manufacturing industries 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.

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 manufacturing subdivisions and groups as defined in the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 (1292.0). 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.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.

Price indexes of articles produced by manufacturing industries

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.

The price of articles produced by manufacturing, as measured by the manufacturing division output index, increased by 20% between 2002-03 and 2006-07 (table 29.15).

29.15 MANUFACTURING DIVISION OUTPUT INDEX(a)(b)(c)
2002-03
130.3
2003-04
130.4
2004-05
139.3
2005-06
149.4
2006-07
156.4
(a) Reference base year is 1989-90 = 100.0.
(b) As defined in the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition.
(c) The index is on a net basis and relates in concept only to transaction in articles produced that are sold outside the Australian Manufacturing industry.
Source: Producer Price Indexes, Australia (6427.0).

The output price indexes for ANZSIC manufacturing subdivisions and groups (table 29.16) 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.

In 2006-07, the largest increase in the price of articles produced was in the basic metal products manufacturing industry at 24%, while prices of petroleum and coal products fell slightly.

29.16 PRICE INDEX OF ARTICLES PRODUCED BY MANUFACTURING INDUSTRIES(a)(b)
2001-02
2005-06
2006-07
Change from 2001-02 to 2006-07
Change from 2005-06 to 2006-07
ANZSIC Subdivision/Group(c)
Index no.
Index no.
Index no.
%
%
Food, beverages and tobacco
139.9
150.3
156.4
11.8
4.1
Textiles and textile products
111.8
116.2
120.1
7.4
3.4
Knitting mills, clothing, footwear and leather
122.3
124.9
125.5
2.6
0.5
Log sawmilling and other wood products
132.4
143.8
148.2
11.9
3.1
Paper and paper products
115.9
118.5
120.2
3.7
1.4
Printing, publishing and recorded media
155.5
159.1
161.1
3.6
1.3
Petroleum and coal products
158.5
297.4
295.6
86.5
-0.6
Chemicals
113.9
123.4
127.6
12.0
3.4
Rubber and plastics
123.9
136.4
140.6
13.5
3.1
Non-metallic mineral products
118.7
134.1
136.7
15.2
1.9
Basic metal products
107.9
152.9
189.8
75.9
24.1
Fabricated metal products
118.6
140.6
145.3
22.5
3.3
Transport equipment and parts
128.5
126.3
129.2
0.5
2.3
Electronic equipment and other machinery
114.2
118.6
122.7
7.4
3.5
Other manufacturing
131.0
138.5
143.4
9.5
3.5
(a) Reference base year is 1989-90 = 100.0.
(b) These indexes are on a net basis and relate in concept only to transactions in articles produced that are sold outside the particular subsector of the Australian Manufacturing industry.
(c) Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition.
Source: Producer Price Indexes, Australia (6427.0).

Price indexes of materials used in manufacturing industries

The manufacturing division input index (table 29.17) 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.

The price of materials used in manufacturing, as measured by the manufacturing division input index, increased by 23% between 2002-03 and 2006-07, driven mainly by increases in the price of domestic materials. In 2006-07, the price of domestic materials was 34% higher than the price in 2002-03, while the price of imported materials had risen by 5%.

29.17 MANUFACTURING DIVISION INPUT INDEX(a)(b)(c)
Materials used
Domestic
Imported
Total
2002-03
136.7
125.4
131.9
2003-04
134.1
115.2
125.9
2004-05
149.7
120.8
137.1
2005-06
172.3
127.2
154.5
2006-07
183.2
132.0
162.2
(a) Reference base year is 1989-90 = 100.0.
(b) As defined in the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition.
(c) The index is on a net basis and relates in concept only to transaction in articles produced that are produced outside the Australian Manufacturing industry.
Source: Producer Price Indexes, Australia (6427.0).


The input price indexes for ANZSIC manufacturing subdivisions and groups (table 29.18) 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.

From 2005-06 to 2006-07 the price of materials used in manufacturing, as measured by the manufacturing division input index, increased by 5%. Increases occurred for the materials used in the majority of constituent manufacturing industries. The largest increase in price was for the materials used in basic metal products (19%), followed by the materials used for fabricated metal products (12%) and electronic equipment and other machinery (11%) industries.

29.18 PRICE INDEX OF MATERIALS USED IN MANUFACTURING INDUSTRIES(a)(b)
2001-02
2005-06
2006-07
Change from 2001-02 to 2006-07
Change from 2005-06 to 2006-07
ANZSIC Subdivision/Group(c)
Index no.
Index no.
Index no.
%
%
Food, beverages and tobacco
137.8
143.8
149.6
8.5
4.0
Textiles and textile products
106.9
100.1
104.5
-2.3
4.4
Knitting mills and clothing
109.2
104.3
108.0
-1.1
3.6
Footwear
130.3
121.4
124.2
-4.7
2.3
Leather and leather products
102.7
86.2
92.0
-10.5
6.7
Log sawmilling and other wood products
136.1
133.5
135.3
-0.6
1.3
Paper and paper products
109.7
105.8
110.8
1.0
4.8
Printing, publishing and recorded media
119.3
108.6
109.3
-8.4
0.6
Petroleum and coal products
175.9
296.1
294.7
67.5
-0.5
Chemicals
121.0
124.7
136.7
12.9
9.6
Rubber and plastics
121.6
135.9
147.7
21.4
8.7
Non-metallic mineral products
115.4
139.1
142.8
23.7
2.7
Basic metal products
106.0
147.0
175.3
65.3
19.3
Fabricated metal products
110.6
140.1
156.8
41.8
11.9
Transport equipment and parts
124.6
132.6
138.5
11.2
4.4
Electronic equipment and other machinery
107.2
125.1
138.2
29.0
10.5
Other manufacturing
124.4
141.2
149.1
19.8
5.6
(a) Reference base year is 1989-90 = 100.0.
(b) The index is on a net basis and relates in concept only to transactions in materials used in the industry that are produced outside that particular subsector of the Australian Manufacturing industry, or imported from overseas.
(c) Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition.
Source: Producer Price Indexes, Australia (6427.0).

Construction industries indexes

Price index of the output of the construction industry

The producer price index of the output of the general construction industry (table 29.19) measures changes in prices of the output of ANZSIC Subdivision 41 - General construction and in the output of the constituent groups and classes of this subdivision. These include house construction (measured using the CPI project home series, excluding sponsored government home buyers' schemes), other residential building construction, non-residential building construction and non-building construction.

Between 2005-06 and 2006-07 the price indexes for output of the building construction and the non-building construction components of the general construction industry increased by 4.2% and 5.0% respectively (table 29.19). The price index for the output of the general construction industry increased by 4.2% in the period.

29.19 PRICE INDEX OF THE OUTPUT OF THE GENERAL CONSTRUCTION INDUSTRY(a)
ANZSIC Subdivision/Group/Class(b)
2002-03
2003-04
2004-05
2005-06
2006-07
General construction
112.7
121.1
130.2
136.5
142.3
Building construction
112.4
121.2
130.6
136.8
142.5
House construction
116.5
123.7
130.6
136.1
139.7
Residential building construction n.e.c.
110.4
121.0
132.1
138.7
144.8
Non-residential building construction
109.6
119.5
131.3
138.2
146.2
Non-building construction
116.0
120.8
125.8
133.2
139.9
Road and bridge construction
116.0
120.8
125.8
133.2
139.9
(a) Reference base year is 1998-99 = 100.0.
(b) Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition.
Source: Producer Price Indexes, Australia (6427.0).

Price index of materials used in house building

The producer price index of materials used in house building measures changes in the prices of selected materials used in the construction of houses in the Statistical Division containing each state capital city.

Table 29.20 shows price index series for each of the six state capital cities and for the weighted average of the six state capital cities.

29.20 PRICE INDEX OF MATERIALS USED IN HOUSE BUILDING(a)(b)
Sydney
Melbourne
Brisbane
Adelaide
Perth
Hobart
Weighted average of six capital cities
2002-03
137.2
128.4
127.6
135.7
123.0
133.7
130.5
2003-04
142.3
131.1
132.1
138.4
125.8
139.4
134.3
2004-05
146.6
134.6
137.3
143.4
131.1
148.0
138.8
2005-06
149.5
137.0
140.8
145.8
136.0
151.0
142.0
2006-07
153.3
141.7
145.3
149.9
144.0
156.2
147.0
(a) Reference base year is 1989-90 = 100.0.
(b) The separate city indexes measure price movement within each city individually. They do not compare price levels between cities.
Source: Producer Price Indexes, Australia (6427.0).



Service industries price indexes

In recognition of the increasing contribution of service industries to the Australian economy, the ABS has progressively extended the scope of the producer price indexes into the service sectors of the economy. Service industry price indexes are an important part of a broader ABS plan to provide a range of statistics that will improve the measurement of various aspects of service industries in the Australian economy.

The ABS publishes producer price indexes for the output of the Transport (freight) and Storage Division, and the Property and Business Services Division of ANZSIC. The index for transport (freight) and storage industries contains important freight transport industries such as road, rail, sea and air. The index for property services industries contains services such as real estate agents and the hire and lease of machinery and equipment. The index for business services industries contains a range of services including surveying, computer services, legal and accounting services, employment placement, pest control and security services.

Tables 29.21, 29.22 and 29.23 provide broad level, summary index series.

29.21 PRICE INDEX FOR TRANSPORT (FREIGHT) AND STORAGE INDUSTRIES(a)
Road transport
Rail transport
Water transport
Air and space transport
Services to transport
Other transport
Storage
Transport (freight) and storage division
2002-03
107.3
94.8
106.3
111.4
100.2
103.4
103.3
105.2
2003-04
110.2
95.7
105.2
114.4
101.4
101.7
104.9
107.1
2004-05
115.8
96.7
114.3
111.1
104.2
107.8
107.6
111.2
2005-06
123.0
98.0
111.2
119.5
106.6
107.5
113.6
115.9
2006-07
126.9
100.1
110.6
116.6
110.9
107.7
118.2
118.6
(a) Reference base year is 1998-99 = 100.0.
Source: Producer Price Indexes, Australia (6427.0).

29.22 PRICE INDEX FOR PROPERTY SERVICES INDUSTRIES(a)
Property operators and developers
Real estate agents
Machinery equipment hiring and leasing
Property services subdivision
2002-03
111.2
149.7
100.0
113.3
2003-04
111.6
169.0
104.0
116.9
2004-05
115.6
175.7
106.9
121.0
2005-06
122.3
186.8
109.2
127.6
2006-07
131.8
213.0
112.7
138.7
(a) Reference base year is 1998-99 = 100.0.
Source: Producer Price Indexes, Australia (6427.0).


29.23 PRICE INDEX FOR BUSINESS SERVICES INDUSTRIES(a)
Scientific research
Technical services
Computer services
Legal and accounting services
Marketing and business management services
Other business services
Business services subdivision
2002-03
113.5
113.4
114.7
117.7
117.0
108.9
113.6
2003-04
114.3
119.7
115.4
124.4
120.1
113.3
117.5
2004-05
117.4
124.2
115.1
129.0
120.6
116.8
119.9
2005-06
124.1
134.0
117.2
136.9
123.7
119.7
124.4
2006-07
129.5
144.8
119.9
143.2
129.5
124.9
130.0
(a) Reference base year is 1998-99 = 100.0.
Source: Producer Price Indexes, Australia (6427.0).





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