7.1. The Price Index of Materials Used in Manufacturing Industries, Australia was first published in April 1975 on a reference base of 1968-69 = 100.0. The index had a weighting pattern derived from the value of estimated manufacturing materials usage in 1971-72. Monthly index numbers were compiled for the period July 1968 to November 1985. A description of the first series, including its composition and weighting pattern, is given in the April 1975 issue of the publication (Catalogue No. 6411.0).
7.2. In December 1985, a revised series of indexes were released. These indexes were rebased to the reference year 1984-85 = 100.0 and were linked to the previous series.
7.3. These indexes were again reviewed and a revised series issued in July 1996. As a result of this review, the underlying classification of the indexes was changed from the Australian Standard Industrial Classification - 1983 (ASIC) to the Australian and New Zealand Standard Industrial Classification - 1993 (ANSIC). The price indexes were rebased to the reference year 1989-90 = 100.0 and were linked to the previous series. From September quarter 1997 the indexes have been compiled and released quarterly.
Nature and purpose
7.4. The indexes measure changes in prices of materials used by establishments classified to the Manufacturing Division of ANZSIC. Separate price indexes are published for materials used in the Manufacturing Industry as a whole and for 17 separate Manufacturing 'sectors' (defined in terms of ANZSIC Subdivisions or Groups). Separate series are also provided for materials classified according to whether they are domestically produced or imported. Special series for selected materials used in the fabricated metal products industry (ANZSIC Group 276) are also published.
7.5. The indexes are used by both the government and private sectors primarily for adjusting business contracts. They are also used for economic analysis.
7.6. Since the weights used are based on the total materials usage all establishments classified to each respective manufacturing 'sector', the index movements are not necessarily representative of price movements experienced by any particular manufacturing establishment.
7.7. The indexes are compiled and published on a net sector basis. Each index includes only those materials which are used in defined 'sectors' of the Australian manufacturing industry and which have been produced by establishments outside that 'sector'. That is, they:
- exclude semi-processed materials which have been purchased by establishments in a particular manufacturing 'sector' from other establishments in the 'sector'; but
- include materials produced by Australian establishments classified to other manufacturing 'sectors' or to other ASIC Divisions (e.g. Mining); and
7.8. Thus, the pricing basis and the weights used for these net sector indexes reflect purchases and transfers at the point of entry to each respective manufacturing 'sector'.
Composition and weighting
- include imported materials (whether manufactured or not).
7.9. Table 7.1 provides the composition and weighting of the Manufacturing Division index. Materials are classified by their ANZSIC industry of origin (i.e. the industry in which, in accordance with the classification rules of ANZSIC, the materials are primarily produced in Australia or the industry in which the materials would be classified had they been produced in Australia). Percentage contributions in 1989-90 of materials, classified by the relevant ANZSIC subdivisions and groups, to the Manufacturing Division as a whole are provided.
7.10. The composition and weighting of each of the 'sector' indexes (defined in terms of ANZSIC Subdivisions or Groups) is given in Tables 7.2. These weights remain fixed between the periodic reviews of the whole index.
Data sources – weights
7.11. The items included in the indexes were selected on the basis of values of materials used in 1989-90 as reported in the Census of Manufacturing Establishments.
7.12. The 1989-90 Census of Manufacturing Establishments provided usage values on a gross basis. These were adjusted to the required net basis using the inter-industry usage information provided in Input-Output tables for that year.
7.13. The 1989-90 Input-Output tables also provided the information required to estimate the proportions of each material that were imported and domestically produced.
7.14. A second level of weights used are the sample weights. These are the weights given to each precise specification in the sample of specifications selected to represent a regimen item. Over time these weights may change as the relative importance of the specifications in the sample change, or as the selection of specifications in the sample changes. The sample weights are kept under continual review in accordance with the program of sample review and maintenance discussed in Chapter 12.
7.15. The main data source for determining sample weights is the supplier of the material prices. Information is obtained by personal interview.
Data sources – prices
7.16. Price collection is spread across the three months of the quarter. For those materials subject to significant price variation throughout the quarter, and for which a single price observation would not be representative, average prices are collected after the end of the quarter. Such materials include agricultural materials, and metal ores and concentrates.
7.17. The prices relate to specified standards of each material and are obtained from representative respondents. Prices of domestically produced materials are generally obtained from manufacturers who use the material, though in some cases it is easier to obtain them from the supplier (e.g. for electricity). Prices of imported materials are generally obtained from the importers, including manufacturers who import directly.
7.18 Pricing for these indexes is at the point at which the material physically enters the defined manufacturing 'sector'. Thus, in general, prices are collected on a delivered into store basis.
7.19. As far as possible, actual transaction prices are used in this index – that is, prices actually paid by manufacturers to the suppliers of the materials. Some pricing problems are discussed in paragraphs 7.20 to 7.27.
Special pricing considerations
Pricing of transferred goods
7.20. Transfers which do not take place in the open market present problems in the measurement of price change. For example, a vertically integrated enterprise extracts a mineral (mining activity) and also processes it (manufacturing activity). Since the material is transferred from one part of the enterprise to another there is usually no transaction price. In such instances, various methods of imputing changes in market prices have been adopted. Depending on the circumstances and the availability of data, these methods include:
- using opportunity costs based, for example, on the price of the material in an established market; or
- changes in cost based on the expenses actually incurred in obtaining the material.
Pricing seasonal materials
7.21. In the case of seasonal materials such as fruit and vegetables, where deliveries do not occur over the whole year, the previous season's prices are repeated for the months outside the selling season until the next season's prices become operative.
7.22. For some items, such as sugar cane, the prices are only determined annually and the final prices do not become known until sometime after the relevant season or contract period. Estimates of the current period price are used until the final price becomes available. Incorporation of the final price may involve revisions to already published index numbers.
Pricing of electricity
7.23 In recent years the electricity industry has been subject to considerable change due to deregulation and micro economic reform including the move to a 'national' grid covering, initially, New South Wales, Victoria and Queensland. This process of change is still continuing.
7.24 The ABS has made strenuous efforts to accommodate these changes and is continuing to monitor the industry. The problem in measuring electricity prices in the present environment, however, is that the actual prices charged by a supplier to any customer is determined by a process of negotiation. Customers with 'favourable' usage patterns are able to negotiate much lower unit prices than those with less favourable load profiles. Customers are also able to switch from one supplier to another and may even deal with a supplier from another State. As a result, it has generally not been possible to maintain continuity of pricing. Consequently, some compromises have had to be made and unit values of average realisations are used as a proxy for specific transaction price observations.
Pricing of water
7.25. There are similar problems in collecting prices for water, further complicated because there are two components to the tariff:
- water rates – a charge based on the value of the property using the water. The amount paid in water rates entitles the user to consume a certain quantity of water; and
7.26. Again, a representative sample of users has been chosen and the average usage of water over the previous five years has been determined for each user. A price is then collected each month for the consumption of that average amount of water.
- water charge – a payment, per kilolitre, made for water consumed in excess of the entitlement given by the water rate.