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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5.10 As a case study, data on the latter stages of production and distribution are examined more closely below. The following graph summarises the behaviour of the SOP ‘Final goods—Total Consumption’ series and the Consumer Price Index (CPI) goods component series. In the data model illustrated in diagram 2, these data series are represented by the two shaded boxes on the right-hand-side, joined by a solid arrow.

      Base: Year 1989–90 = 100.0

5.11 As noted in Chapter 4, over the period 1989–90 to June quarter 1998, the CPI-based series increased by more than the SOP-based series (23.1% compared with 20.2%). However, the relative rates of change in the two series varied over time, as can be seen below, where the index changes are presented for separate intervals of the total period of study.

Series base

    1989–90–Sep 1991
    Sep 1991–Jun 1993
    Jun 1993–Jun 1995
    Jun 1995–Jun 1998
    Total period

5.12 For the first interval (of nearly two years), the CPI-based series rose at a significantly greater rate than the SOP-based series, while over the second interval (again, just under two years) the situation reversed with the SOP series outstripping the CPI series.

5.13 However, over the third (two year) interval the pattern reverted to that of the first interval with the rate of increase in the CPI series a little higher than that of the SOP series. Finally, in the fourth (three year) interval, the disparity in the rates of change increased as the CPI series increased at a much greater rate than the SOP series.

5.14 Looking separately at the imported component of each of the series (1) for each of the four intervals, import prices have generally had a dampening effect in each of the intervals. The outstanding exception is for the SOP series over the second interval (September 1991 to June 1993) when import prices rose by 14.8%, boosting a 3.9% increase in domestic prices to an increase of 5.9% in the total series. That is, import price rises caused the SOP index series to increase by more than the CPI series in this interval.
(1) The imported component of SOP series is contained in table 5 above, and the imported component of the CPI goods series is published in Consumer Price Index: Effect of Cchanges in Prices of Imported Items, June Quarter 1998 (Cat. no. 6444.0).

5.15 However, most of the 14.8% increase in prices of imported final consumption goods recorded in the SOP series does not appear to have flowed through to the relevant component of the CPI over the period. In order to rationalise this situation, the other cost elements associated with distributing imported goods to consumers would need to be considered.

5.16 That is, a reconciliation is required of:
      • the f.o.b. import prices of consumption goods from the SOP framework (which are recorded on a valuation basis earlier than that associated with basic prices);
      • the prices recorded in the relevant component of the CPI which are valued at purchasers’ prices; (2) and
        (2) The purchaser's price is the amount paid by the purchaser inclusive of indirect taxes (less subsidies), trade margins (wholesale and retail) and transport costs. That is, the price for a commodity supplied to the purchaser. The basic price is the amount received by the producer exclusive of indirect taxes (less subsidies), and transport and trade margins. That is, it is the ex-plant price.
      • the different costs associated with moving from a pre-basic prices valuation basis to a purchasers’ prices valuation basis.

5.17 As explained in footnote (2) above, the difference between basic prices and purchasers’ prices comprises:
      • indirect taxes less subsidies,
      • wholesale and retail trade margins, and
      • transport charges

5.18 In addition, because the prices of the imported consumer goods are recorded on an f.o.b. basis it is also necessary to consider international freight and insurance.

5.19 In assessing the behaviour of the different trade and transport margins, indirect taxes and international freight charges, the following questions could be posed.
      • Were there any changes in the indirect tax regime over the period? In particular, did the rates of wholesale sales taxes and excise taxes change?
      • Is there any evidence of wholesalers and retailers absorbing any of the price rises for imported consumer goods by reducing profit margins?
      • What movement was there in freight costs over the period, especially for road transport?
      • Did international freight charges on imports change significantly?

5.20 The second question would be the most difficult to answer because of statistical measurement complexities.

5.21 Generalising this specific analysis, if the work the ABS is undertaking in expanding its data collection and analysis on service industry price movements (especially for freight charges) assists in answering at least some of the questions posed above, then we are closer to being able to use the data model to assist in deriving estimates of period-to-period changes in wholesale and retail trade margins as a residual.

5.22 Within the framework of the data model, similar exercises could be undertaken in relation to trade margins on domestically sourced goods.

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