These indexes are compiled using the stage of production 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 1994-95 Australian input-output tables. 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. 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.
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 input-output tables.
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 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 n.e.c., Non-residential building construction, and Road and bridge construction. Coverage of the stage of production index will be progressively extended as additional service and construction industry collections are established. Table 28.7 shows stage of production producer price indexes from 1998-99 to 2001-02.
28.7 STAGE OF PRODUCTION PRODUCER PRICE INDEXES, By stage and source
Final (excluding exports)
Source: Producer Price Indexes, Australia (6427.0).