6427.0.55.007 - Experimental Producer Price Index for the Output of the Retail Trade Industry, Australia, 2013  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 04/10/2013  First Issue
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CHAPTER 2 : THE APPLICATION OF A RTPI

INTRODUCTION

2.1 The ABS determined during the PPI Review that the principal purpose of the PPIs is to measure inflation by industry to support the calculation of chain volume measures for both the quarterly and annual Australian National Accounts. This requires the PPIs to be compiled on a basis consistent with the 2008 SNA statistical framework and on a gross industry basis. The RTPIs have been developed in this context.

PRINCIPAL PURPOSE : SUPPORT FOR THE COMPILATION OF THE NATIONAL ACCOUNTS

2.2 The SNA describes its main objective as follows “to provide a comprehensive conceptual and accounting framework that can be used to create a macroeconomic database suitable for analysing and evaluating the performance of an economy (Endnote 12).” The most widely known and used aggregate statistic within the SNA is the volume measure of GDP. The SNA provides specific guidance on the compilation of an integrated set of volume measures.

2.3 The two basic approaches for producing consistent volume measures are price deflation and quantity revaluation. Price deflation is the more commonly used approach and involves dividing a current price value of sales or turnover by a price index movement to obtain a constant price indicator.

2.4 The PPIs for the output of the retail trade industry will be utilised in a number of areas to compile the Australian National Accounts. These include: (a) the Supply and Use tables; (b) the annual State Accounts; and (c) the quarterly and annual Australian National Accounts.


SUPPLY AND USE TABLE COMPILATION (Endnote 13)

2.5 The annual Supply and Use tables (S–U tables) underpin the Australian System of National Accounts (ABS cat. no. 5204.0). Annual S–U table benchmarking ensures that the three approaches to measuring gross domestic product (production, income and expenditure) have equal annual values for a given reference period.

2.6 S–U tables also provide the basic information for the derivation of detailed Input–Output (I–O) tables that may be used for the purposes of economic analysis and projections. These are published in National Accounts: Input Output Tables (ABS cat. no. 5209.0.55.001).

2.7 The compilation of the S–U tables and the PPI output indexes at basic prices enables the use of PPIs to calculate chain volume measures by product.

2.8 The PPIs for the output of the retail trade industry will be used to deflate the current price value of the retail trade margins of various SUPCs. For this to occur, data are required at the Supply and Use Product Classification (SUPC) level. The SUPC is an aggregation of products to product groups as classified by the Input–Output Product Classification (IOPC). The IOPC is used in the preparation of I–O tables.

2.9 The volume movements derived from the S–U tables are used to benchmark the volume movements published in the annual and quarterly GDP accounts.


NATIONAL AND STATE ACCOUNTS COMPILATION

2.10 Currently the ABS uses Consumer Price Indexes (CPIs) to deflate the retail trade industry current price estimates to compile chain volume measures (CVMs) of gross domestic product (Endnote 14). The availability of a PPI for the output of the retail trade industry will enable a more conceptually correct estimate of retail trade industry output CVMs. PPIs for output of the retail trade industry will be compiled at the state and territory level, on a quarterly and annual basis to support the compilation of the National and State Accounts.


OTHER USES OF RTPIS

2.11 The PPIs for the output of the retail trade industry are also of use to monitor retail service price inflation and to improve the understanding of the transmission of inflation throughout the economy.


STAGE OF PRODUCTION INDEXES

2.12 PPIs reflecting the supply of products (goods and services) to the Australian economy in a Stage of Production (SOP) framework are published in Producer Price Indexes, Australia (ABS Cat. No. 6427.0). The SOP framework is based on an economic categorisation of transactions according to their sequencing in the production chain.

2.13 The RTPIs fit within the SOP framework, with the greatest impact on the Final Demand (Endnote 15) indexes which cover goods and services flowing to domestic final consumption with no further processing. The inclusion of the RTPIs in the SOP framework will improve the SOP’s analytical power and representativeness of the economy. The implementation of RTPIs in the SOP framework will be communicated ahead of time in the publication Producer Price Indexes Australia (cat.no. 6427.0).



INFLATION MONITORING AND ANALYSIS OF THE ECONOMY

2.14 The availability of RTPIs increases the potential to understand the inflationary processes by better understanding the ability of retailers to respond to changing economic conditions by expanding and contracting their retail margins.



ENDNOTES

12. 2008 SNA, p4, [1.27].

13. For a detailed description of Supply and Use Tables see 2008 SNA, Chapter 14.14. Except for new car sales which are quantity re-valued.15 The ABS has, as of the September quarter 2012, re–labelled the SOP indexes in an effort to better reflect the relationship of the stages of production to final demand. Accordingly, the ABS will use the following terminology:
    Stage 3 (Final) has become Final Demand – Products consumed as Final Demand;
    Stage 2 (Intermediate) has become Intermediate Demand – Products consumed as inputs into the production of Final Demand; and
    Stage 1 (Preliminary) has become Preliminary Demand – Products consumed as inputs into the production of Intermediate Demand.