6422.0 - Information Paper: Producer Price Indexes Developments, 1999  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 25/03/1999   
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Treatment of exports

6.1 As explained in Chapter 3, the scope of the SOP index model includes both exports and imports as well as domestically produced and consumed final goods (i.e. ‘Final goods—Domestic— Consumption plus Capital’, in diagram 1). This approximates the national accounts concept of National turnover (of goods).

6.2 The model also provides for the separate analyses of:

      • domestically consumed final goods plus exports but exclusive of imports (i.e. ‘Final goods—Domestic’, in diagram 1) which approximates Gross domestic product (of goods); and
      • domestically produced final goods plus imports but exclusive of exports (i.e. ‘Final goods—Domestic— Consumption plus Capital’, plus ‘Final goods—Imports’ in diagram 1) approximating Gross national expenditure (on goods).
6.3 The model is flexible in allowing for the tailoring of analyses of indexes of final goods to be targeted at National turnover, Gross domestic product or Gross national expenditure. However, there is not the same flexibility associated with the Intermediate (Stage 2) goods and Preliminary (Stage 1) goods indexes, as the ‘Intermediate goods— Domestic’, and ‘Intermediate goods—Imports’ aggregates (see diagram 1) both include goods that flow to all Final goods (that is, National turnover of goods).

6.4 Therefore, analyses focusing on, say, assessing price transmission effects between Stage 2 goods, Stage 3 goods exclusive of exports (Gross national expenditure) and DFP (see diagram 2) could give misleading signals. The reason is that Stage 2 will include goods that are destined to be inputs to the production of Stage 3 goods for export. Such export prices do not directly impact on domestic inflation and should be excluded for this analysis.

6.5 Similarly, the Stage 1 goods aggregates include those destined for the production of Stage 2 goods that subsequently flow into the production of Stage 3 goods for export.

6.6 Users’ views are requested on whether the model should be further complicated through the calculation of indexes for subsets of the Stage 2 and Stage 1 aggregates which exclude flows relating to the production of goods for export. 6.7 No assessment has yet been made as to the feasibility or desirability of such an elaboration. The practical reality is that it may be necessary to make a choice between an index model that completely excludes, or completely includes, transactions associated with exports.

Number of stages

6.8 In Chapter 2, it is stated that aggregating data relating to all the non-final commodities would result in multiple counting of transactions. Therefore, under the SOP model developed in this paper, the non-final commodities have been split between two stages, resulting in a total of three stages.

6.9 The development of the experimental indexes under the three-stage model was more complex and resource consuming than would have been the case for a relatively straightforward two-stage model comprising final goods and non-final goods, and with non-final goods being on a gross sector basis.

6.10 Users’ views are sought on the relative merits of a three-stage model compared with a two-stage model. In this regard, basic issues to be addressed include an assessment of:

      • the extent to which the multiple counting of transactions in indexes compiled on a gross sector basis leads to distorted results; and
      • whether a three-stage model provides greater potential for identifying early price signals, particularly within a more comprehensive data model, and in times of higher inflation.
6.11 Readers’ views on these issues, and any other matters associated with the experimental SOP indexes, will be welcomed.

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