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Media Backgrounder: For new quarterly ABS publication: For attention of Economic/finance reporters
Next Monday 24 July, the first issue of a new quarterly publication, Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0) will be released.
It will bring together existing producer price data for goods industries, including imports and exports, as well as incorporating newly developed indexes relating to a range of service industries. The latter were first released on Tuesday 18 April, in Producer Price Indexes for Selected Service Industries (Cat. No. 6423.0).
If you are making any comparisons between the PPIs and the CPI, it is particularly important to note that the prices collected for the PPI are those received by producers (eg, the PPI would include the ex factory prices of motor vehicles), whereas the prices used in the CPI are the retail prices faced by households (eg, local dealers' prices of motor vehicles "on the road").
The most significant difference between the two sets of prices is the influence on the retail prices (CPI) of retail and wholesale margins, and taxes. On the other hand, the PPI prices are unaffected by retail and wholesale margins, or any changes in product taxes. The introduction of the new tax system will therefore not directly impact on the new PPI measure.
The release of these new indexes were foreshadowed in the ABS Information Paper, Producer Price Index Developments (cat. no. 6422.0), released on 25 March 1999 and available on the ABS Website.
The basis for Stage of Production Producer Price Indexes is that under the stage of production concept, flows of commodities are categorised into three stages according to their economic destination on a sequential basis along the production chain.
Firstly, final flows relating to sales of capital and consumer items to final buyers, are grouped together in Stage 3. Next, intermediate transactions, relating to the inputs into producing the final commodities - are grouped together as Stage 2. Lastly, preliminary flows, relating to the inputs into the production of the intermediate commodities, are collated into Stage 1. This framework allows for the analysis of price change as commodities flow through production processes.
As well as the abovementioned difference between the PPIs and the CPI due to different pricing points, you should also note that the consumer items component of Stage 3 will differ from the CPI due to the exclusion of household services from the former and because of different weighting patterns that underlie the compilation of the two indexes.
Next Monday if you are reporting on the Stage of Production Producer Price Indexes, Australia, please feel free to contact David Collins, Director, Producer Price Indexes on (02 6252 6248), if you have any uncertainty about technical aspects of the new indexes.
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