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4.3 There was an acknowledged need from both internal and external users of the PPIs and ITPIs for a better representation of the Australian economy by the PPIs and ITPIs. Users supported the intention of the ABS to expand the coverage of indexes as outlined in the Information Paper: Review of the Producer and International Trade Price Indexes, 2011 (cat. no. 6427.0.55.003). Similarly, users supported the intention of the ABS to better capture price change occurring throughout the quarter.
4.4 The 2010 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) recommended that the ABS:
4.6 Some users of economic data are comfortable with the concept of revisions to PPI and ITPI data.
4.7 Average Unit Value (AUV) series for some exports and imports of goods are derived from the Merchandise Trade series. These series are more detailed than the ITPIs but are not adjusted for changes in quality over time and the products included in a classification may not be homogeneous. Some international organisations are exploring techniques to edit AUV series but this is not on the ABS work program. External users did not express an interest in the ABS compiling AUV series.
COVERAGE OF THE PPIs AND ITPIs
4.8 The 2008 System of National Accounts (SNA) Input–Output (I–O) framework overlaid with the currently available price index series (see Diagrams 1 and 2 in Appendix 2) highlights the current coverage gaps of the PPIs, and illustrates that currently the PPIs cover roughly only half of the economy with output indexes, and very little of the economy with input indexes. It can be seen that there is a broader range of goods than services covered. This coverage imbalance is due to the relatively recent rise in the importance of services to the Australian economy and the inherent difficulty in measuring pricing change in services.
4.9 Prompted by structural change in the Australian economy and encouraged by both user demand and the recommendations of the IMF ROSC, the ABS has implemented a strategy to address some coverage shortcomings. The expansion of services price measurement is a key objective for the ABS. Consultation during the review process has revealed the priorities for the program to address as users were particularly interested in improving particular aspects of the coverage of services. A services price index development program will progressively address shortcomings in the coverage of services price change (see Table 4.1).
TABLE 4.1 – SERVICES PRODUCER PRICE INDEX PRIORITIES
4.10 The PPIs for retail trade margins are scheduled for release in 2013. However, due to the timing of input data receipt from survey respondents, the current period trade margins data will not be available to be incorporated in the suite of PPIs at the same time as other PPIs. The ABS is exploring options for a more timely inclusion of retail trade margins price indexes.
4.11 Price indexes for for Construction; Transport, Postal and Warehousing; and Information Media and Telecommunications products are currently under development and will be incorporated within the suite of PPIs in due course.
4.12 International trade in services (ITIS) price indexes will be developed as part of the services development program and on reaching a critical mass of indexes, will be included within the release of the ITPIs. This will be a significant improvement for the ITPIs, adding services alongside the current set of goods indexes. Additionally the ABS has a longer term aim to to reflect non–market prices (as represented in the National Accounts) within the PPI release. The inclusion of indexes such as ITIS and those reflecting non–market prices is dependent on the development of a new computer system, which is expected in mid 2014.
4.13 The intended deliverables of the services prices index development program will improve the coverage of the PPIs and ITPIs to reflect more accurately the contribution of services to the economy.
PRICING FREQUENCY, PRICING COVERAGE AND THE TIMING OF THE RELEASE OF THE PPIs AND ITPIs
4.14 One aspect of price index quality is the capture of representative prices over the quarter. International literature suggests that price movement is best captured by establishment surveys to ensure that the composition and quality of the products surveyed are constant over time. Improved accuracy depends on ensuring a representative price is recorded.
4.15 Several studies (as listed in the Bibliography) on the frequency of price changes in an economy convey a similar message. There is substantial heterogeneity across industries regarding the frequency of surveying products for price change. For example, prices change often in the energy industry, less often in food and intermediate goods and least often in non–durable and durable goods. The product measurement frequencies set by the ABS for PPIs and ITPIs (i.e. whether a product is surveyed once or more frequently per quarter) broadly concord with the studies' results.
4.16 Aligned with pricing frequency, is the coverage of the quarter. International literature (as listed in the Bibliography) recommends that national statistical offices should aim for complete coverage of the quarter for volatile products. This practice would benefit both the PPI and ITPI statistics themselves, and their use as inputs into the compilation of the National Accounts and Balance of Payments.
4.17 There is a tension however, between coverage of the quarter, and timing of release. Most individual products priced in the PPIs and ITPIs are priced multiple times in a quarter, using a point–in–time pricing mechanism. However, it is not possible to concurrently survey and process transactions occurring during the third month of the reference quarter and release the PPIs and ITPIs (as currently released) within a month of the end of the reference period, before the CPI release. Given the volatility in the prices of some products, improving the coverage of the third month of the reference period is of strategic interest to the ABS.
4.18 The IMF's Special Data Dissemination Standard (SDDS) prescribes for national statistical offices to release PPIs monthly, within one month of the end of the reference month. The ABS currently complies with the timeliness of release (PPI publications are released within a month following the reference quarter). Moving to a later release would result in the ABS failing to meet the SDDS, which is understood to be framed around a monthly release timetable. For discussion of the issue of the future frequency of the PPIs and ITPIs, see Chapter 5: Other issues. The current release schedule allows more timely inflation monitoring, however key users have signalled that an improved set of macroeconomic statistics is a relatively higher priority.
4.19 Given the principal purpose, a logical strategy to improve pricing coverage is to align the National Accounts and Balance of Payments input deadlines with the PPIs and ITPIs data collection and release dates.
4.20 To incorporate additional PPI and ITPI survey forms providing full coverage of the quarter and meeting National Accounts and Balance of Payments needs, an additional nine working days are required. In considering this delay, the ABS has examined the impact on other series (see Table 4.2 below).
TABLE 4.2 – THE RELEASE SCHEDULE FOR DEPENDANT OR ASSOCIATED MACROECONOMIC STATISTICS
4.21 The preliminary estimates of imports chain volume measures (CVMs) and implicit price deflators (IPDs), are currently released in the publication International Trade in Goods and Services, Australia (cat. no. 5368.0). In the third month of each quarter in publication ABS cat. no 5368.0, import price indexes from the ITPIs are used to calculate preliminary CVMs for goods imports, for inclusion in the commentary and analysis.
4.22 A delay to the delivery of the ITPI data would not support the inclusion of these preliminary CVMs and accompanying material in ABS International Trade in Goods and Services, Australia (cat. no. 5368.0). As a result, the ABS plans to release a new electronic publication presenting the preliminary imports CVMs as soon as practicable after the release of the ITPIs. Further details on the future of these data will be announced in the June quarter 2012 Balance of Payments and International Investment Position (cat. no. 5302.0).
COHERENCE BETWEEN PRICE INDEXES FOR IMPORTS AND EXPORTS OF GOODS
4.23 This review examined the coherence between three similar ABS (original) price indexes for imports and exports of goods.
4.24 Published in the Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) and Balance of Payments and International Investment Position (cat. no. 5302.0) are:
4.25 Published in the International Trade Price Indexes, Australia (cat. no. 6457.0) are the Import Price Index (IPI) and Exports Price Index (EPI).
4.26 These publications provide detailed Australian export and import price index information for analysts and represent the average change in the prices paid for imported products and the average change in the prices received for exported products. However, while they represent similar economic transactions, they differ in terms of concept, methodology and source data. The indexes are compared and the differences summarised in Table 4.3 below. Appendix 5: Coherence between price indexes for imports and exports of goods, describes the differences between the indexes in more detail.
TABLE 4.3 – COMPARISON OF GOODS IMPORT AND EXPORT PRICE INDEXES
(a) ITPIs = Export price index (EPI) and Import price index (IPI)
(b) Export price index – weights based on the average over two years
(c) International Merchandise Trade (IMT) Average Unit Value (AUV); revisable for 6 months.
(d) Limited usage in ITPI; apart from validation of survey data or, if consistent at the most detailed level, as a price observation
(e) Export goods chain price index – weights based on the average over one year
(f) Adjusted for BPM6 concepts
(g) Export and Import Price index manual (IMF 2009)
4.27 While all the indexes are generally similar in behaviour over the long term, short term deviations are apparent (see Graphs 1 and 2 in Appendix 5), inviting queries from users on the reasons for the differences. Previous discussions with users identified difficulty, on occasion, in reconciling these statistics, impacting on users' abilities to forecast trade volumes.
4.28 This investigation has shown that the concept, methodology and data source for ITPIs and import and export of goods chain price indexes can be aligned, while the import and export of goods IPD does not align with the chain price index methodology. There is an opportunity to streamline the price index compilation processes within the ABS, and an opportunity to improve the coherence between the ITPIs and the Balance of Payments and National Accounts export and imports of goods chain price indexes and Implicit Price Deflators (IPDs).
THE REVISION POLICY OF THE PPIs AND ITPIs
4.29 While the PPIs and ITPIs are subject to revision, they are rare and only occur if the effect of the revision is significant. No revisions are made to include new data that become subsequently available. While the ABS revises many other statistics to improve their reliability and accuracy, prices indexes have generally not been revised because of their use in contract indexation.
4.30 Some national statistical offices, such as the United States (US) Bureau of Labor Statistics (BLS), produce PPIs that are revisable to achieve better pricing coverage for the reporting period, while others, such as Statistics New Zealand, have similar policies to Australia and only revise price indexes to correct a significant error. Most countries' PPIs are used for contract indexation even though the price indexes may not be designed principally for these purposes.
4.31 Countries with revisable PPIs make some suggestions regarding a revisions policy. For example, in the US all original series PPIs are routinely subject to revision only once, four months after their original publication, to reflect late reports and corrections by company respondents. When PPIs are first released, they are described as "originally released" and based on a substantial portion of the total number of returns. However, once revised, indexes are considered final barring significant corrections.
4.32 The review has determined that the principal purpose of the PPIs and ITPIs is to support the compilation of National Accounts and Balance of Payments. The review has also found that the ITPIs should be fully integrated with the National Accounts and Balance of Payments import and export of goods chain price index series. As a result, the need for revision to the PPIs and ITPIs is compelling to ensure the best quality data for use in the National Accounts and Balance of Payments. To ensure the PPIs and ITPIs remain useful for contract indexation needs, the ABS finds the strategy employed by other national statistical offices, which limits the period of revision, to be a practical solution.
4.33 The length of the revision period will be further investigated and announced prior to the September quarter 2014 International Trade Price Indexes, Australia (cat. no. 6457.0) release. Preliminary thinking suggests that the window should be limited to one quarter as changes to PPI and ITPI data are observable during the subsequent quarterly survey cycle. Although there is a six month (two quarter) revision window for IMT data, the limited use of this data in the ITPIs will not see any particular benefit from an extension of the revision period beyond one quarter. The revisions strategy is dependent on the development and implementation of a new computer system, which is expected in mid 2014.
4.34 The ABS will improve the coverage of the 2008 SNA I–O framework by progressively developing new price indexes, in line with the priorities detailed in this review. Subsequent priorities will be decided upon by the ABS in consultation with key users.
4.35 From the September quarter 2012, the ABS will increase the collection of price observations in the third month of the reference quarter to ensure full quarter coverage. As a result:
4.36 From early 2013, the ABS will fully incorporate the use of the EPIs and the IPIs (i.e. the ITPIs) in the compilation of the National Accounts and the Balance of Payments CVMs. This outcome improves the coherence between the ITPIs and the Balance of Payments and National Accounts export and imports of goods chain price indexes and IPDs. The ITPIs will continue to be aggregated using weights aligned with International Merchandise Trade Statistics (IMTS) concepts.
4.37 From the September quarter 2014, the ABS will further improve the coherence of the ITPIs with the Balance of Payments and National Accounts export and imports chain price indexes and IPDs. The ABS will broaden the scope of the ITPIs to include International Trade in Services. The ITPIs will change to being aggregated using weights aligned with Balance of Payments and International Investment Position Manual, sixth edition (BPM6) concepts.
4.38 The ABS noted the demand for AUV Merchandise Trade series and will continue to publish the Merchandise Trade value and quantity components which allow their derivation, in the current ABS merchandise trade publications.
4.39 From the September quarter 2014, the introduction of a new computer system will allow the coverage of the PPIs to include non–market price indexes.
4.40 From the September quarter 2014, the PPIs and ITPIs will be revised to accommodate improved 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 and respondent corrections). The time period that the statistics will remain open to revision is subject to further investigation.
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