6429.0 - Producer and International Trade Price Indexes: Concepts, Sources and Methods, 2014  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 20/08/2014   
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CHAPTER 14 OUTPUTS AND DISSEMINATION


INTRODUCTION

14.1 This chapter outlines the Australian Producer Price Indexes (PPIs) and International Trade Price Indexes (ITPIs) available from the Australian Bureau of Statistics (ABS) and explains how to interpret the data.


PUBLICATION OF STATISTICS

14.2 The Australian PPIs and ITPIs are published quarterly in Producer Price Indexes, Australia (cat. no. 6427.0) and International Trade Price Indexes, Australia (cat. no. 6457.0). Both publications are released no later than 33 working days after the end of the reference quarter. The publication dates for these statistics are finalised and announced a year in advance.


Equity of access

14.3 The statistics are made available simultaneously to all via the ABS website. This approach supports the principle of equity of access. All statistics are subject to an embargo until 11.30 a.m. (Canberra time) on the day of release. No information about the price indexes is publicly available prior to the lifting of the embargo.

14.4 The 11.30 a.m. embargo and simultaneous access applies to the statistical releases in all forms of media; specifically, electronic data and hard copy publications are made available simultaneously.


Materials released

14.5 The Producer Price Indexes, Australia (cat. no. 6427.0) and International Trade Price Indexes, Australia (cat. no. 6457.0) statistics are disseminated via several mechanisms. The key mechanism for dissemination of data is via the ABS website https://www.abs.gov.au/. The website provides the following information free of charge:

  • the main findings from the statistical releases
  • all publication tables in the publications, downloadable in Microsoft Excel format
  • a range of additional tables containing all available PPIs and ITPIs downloadable in Microsoft Excel format.


Quarterly and annual data

14.6 Price index figures are published on a quarterly, annually and a financial year basis. The index number for a financial year is the simple arithmetic average (mean) of the index numbers for the 4 quarters of that year. Index numbers for calendar years are not calculated by the ABS but can be derived by calculating the simple arithmetic average of the quarterly index numbers for the year concerned.


Revisions

14.7 Revisions are rare and are only made if the effect of the revision is significant. In the event of a revision the affected figures will be highlighted in the publication, with a reason for revision provided in the commentary. In Information Paper: Outcome of the Review of the Producer and International Trade Price Indexes, 2012 (cat. no. 6427.0.55.004) the ABS announced its intention in the future to allow the PPIs and ITPIs to be revised to accommodate data in subsequent quarters. To minimise the impact on those who use the indexes for contract indexation, once revised, indexes will be considered final (barring significant error). The time period that the statistics will remain open to revision is subject to further investigation, but the ABS expects this to be one quarter only. A time frame for implementing this new approach to revisions is yet to be determined.


INTERPRETING INDEX NUMBERS

Index numbers and percentage change

14.8 Movements in indexes from one period to any other period can be expressed either as changes in index points or as percentage changes. The following example illustrates these calculations for the Final Demand Stage of Production PPI between the December quarter 2009 and the December quarter 2012. The same procedure is applicable for any two periods.

TABLE 14.1 INDEX POINTS AND PERCENTAGE CHANGE

Index numbers

December quarter 2012
101.1
less December quarter 2009
94.7
equals change in index points
6.4
Percentage change = 6.4 / 94.7 x 100
6.8%



14.9 For most applications, movements in price indexes are best calculated and presented in terms of percentage change. Percentage change allows comparisons in movements that are independent of the level of the index. For example, a change of 2 index points when the index number is 120 is equivalent to a change of 1.7%, but if the index number were 80 a change of 2 index points would be equivalent to a change of 2.5% - a significantly different rate of price change. Only when evaluating change from the reference period of the index will the points change be numerically identical to the percentage change.

14.10 The percentage change between any two periods must be calculated, as in the example above, by direct reference to the index numbers for the two periods. Adding the individual quarterly percentage changes will not result in the correct measure of longer-term percentage change. That is, the percentage change between, for example, the June quarter one year and the June quarter of the following year will not necessarily equal the sum of the four quarterly percentage changes. The error becomes more noticeable the longer the period covered and the greater the rate of change in the index. This can readily be verified by starting with an index of 100 and increasing it by 10% (multiplying by 1.1) each period. After four periods, the index will equal 146.4 delivering an annual percentage change of 46.4%, not the 40% obtained by adding the four quarterly changes of 10%.

14.11 Although the PPIs and ITPIs are compiled and published as a series of quarterly index numbers, their use is not restricted to the measurement of price change between particular quarters. A quarterly index number can be interpreted as representing the weighted average price during the quarter (relative to the reference period), index numbers for periods spanning more than one quarter can be calculated as the simple (arithmetic) average of the relevant quarterly indexes. For example, an index number for the year 1998 would be calculated as the arithmetic average of the index numbers for the March, June, September and December quarters of 1998.

14.12 This characteristic of index numbers is particularly useful. It allows for comparison of average prices in one year (calendar or financial) with those in any other year. It also enables prices in, say, the current quarter to be compared with the average prevailing in some prior year.


Index numbers and points contribution

14.13 The quarterly change in a price index represents the weighted average price change of all the product groups included in that index. Publication of index numbers and percentage changes for components of the broad price indexes are useful in their own right. However, these data are often not sufficient to enable important contributors to overall price change to be reliably identified. What is required is some measure that encapsulates both a product group’s price change and its relative importance in the index.

14.14 If a broad level index number is thought of as being derived as the weighted average of the indexes for all its component product groups, then the index number for a component multiplied by its weight to the broad level index results in what is called its ‘points contribution’. It follows that the change in a component item’s points contribution from one period to the next provides a direct measure of the contribution to the change in the broad level price index resulting from the change in that component’s price. This relationship only applies if all components have the same reference period and the same link period. Calculation of points contribution is covered in more detail in Chapter 10, whilst reference period and link periods are discussed in Chapter 12.

14.15 Information on points contribution and points contribution change is of immense value when analysing sources of price change and for answering ‘what if’ type questions. Consider the following data from the December quarter 2012 Export Price Index (EPI):

Table 14.2 SELECTED VALUES FROM ITPI PUBLICATION, DECEMBER QUARTER 2012

INDEX NUMBERS
PERCENT CHANGE
POINTS CONTRIBUTION
POINTS CHANGE
Sep qtr
Dec qtr
Sep qtr
Dec qtr

Total exports
90.5
88.3
-2.4
90.5
88.3
-2.2
Mineral fuels
91.0
84.2
-7.5
25.68
23.76
-1.92



14.16 Using only the index numbers themselves, the most that can be said is that between the September and December quarters 2012, the price of mineral fuels exports fell by more than the overall EPI (by 7.5% compared with a rise in total exports of 2.4%). The additional information on points contribution and points change can be used to:
  • Calculate the effective weight for mineral fuels in the September and December quarters (given by the points contribution for mineral fuels divided by the total exports index). For September, the weight is calculated as 25.68/90.5 x 100 = 28.38% and for December as 23.76/88.3 x 100 = 26.91%. Although the underlying quantities are held fixed, the effective weight in export revenue terms has fallen due to the prices of mineral fuels increasing by less than the prices of all other products in the EPI basket (on average)
  • Calculate the percentage change that would have been observed in the EPI if all prices other than those for mineral fuels had remained unchanged (given by the points change for mineral fuels divided by the total exports index number in the previous period). For December quarter 2012 this is calculated as 1.92/90.5 x 100 = 2.12%. In other words, a 7.5% fall in mineral fuels export prices in December quarter 2012 would have resulted in a fall in the overall EPI of 2.12%
  • Calculate the average percentage change in all other items excluding mineral fuels (given by subtracting the points contribution for mineral fuels from the total exports index in both quarters and then calculating the percentage change between the resulting numbers - which represents the points contribution of the ‘other’ products). For the above example, the numbers for total exports excluding mineral fuels are: September, 90.5 - 25.68 = 64.82; December, 88.3 - 23.76 = 64.54; and the percentage change, (64.54 - 64.82)/ 64.82 x100 = -0.43%. In other words, prices of all exports other than mineral fuels fell by 0.43% on average between the September and December quarters 2012
  • Estimate the effect on the Total Exports of a forecast change in the prices of one of the products (given by applying the forecast percentage change to the products points contribution and expressing the result as a percentage of the total exports index number). For example, if prices of mineral fuels were forecast to rise by 25% in March quarter 2013, then the points change for mineral fuels would be 23.76 x 0.25 = 5.94, which would deliver a rise in the total exports index of 5.94/88.3 x 100 = 6.7%. In other words, a 25% rise in mineral fuels prices in March quarter 2012 would have the effect of increasing the EPI by 6.7%. Another way commonly used to express this impact is “a 25% rise in the price of mineral fuels would contribute 6.7 percentage points to the change in the total exports EPI”.


Points contribution, reweighting and link periods

14.17 As noted in Chapter 10, the use of points contribution as an analytical tool is limited to comparison of those index numbers on the same weighting reference. If a price index is rebased (and its weighting basis changed), it will not be possible to compare points contribution data on the old weighting basis with data from the new weighting basis. This means it is not possible to undertake points contribution analyses across a link period. Linking of price indexes is discussed in detail in Chapter 12.

14.18 This limitation has particular impact on the ITPIs, since these price indexes are reweighted every year (with June quarter as the link period). This means that points contribution analyses cannot be undertaken, for example, in comparing price indexes from September quarter with price indexes from March quarter of the same calendar year. Such an analysis would bridge the June quarter link period and is therefore not possible.


Precision and rounding

14.19 To ensure consistency in the application of data produced from the price indexes, it is necessary for the ABS to adopt a set of consistent rounding conventions or rules for the calculation and presentation of data. These conventions strike a balance between maximising the usefulness of the data for analytical purposes and retaining a sense of the underlying precision of the estimates. These conventions need to be taken into account when using price index data for analytical or other special purposes.

14.20 Index numbers are always published to a reference of 100.0. Index numbers and percentage changes are always published to one decimal place, with the percentage changes being calculated from the rounded index numbers. Points contributions are published to two decimal places, with points contributions change being calculated from the rounded points contributions. Index numbers for periods longer than a single quarter (e.g. for financial years) are calculated as the simple arithmetic average of the relevant rounded quarterly index numbers. Percentage changes between these periods are calculated from the rounded average index numbers.