6.1. The Price Indexes of Articles Produced by Manufacturing Industry, Australia, (6412.0) was first published in June 1976, with indexes compiled from July 1968. The composition and weighting patterns of the indexes were based on the value of production in 1971-72 (as reported in the 1971-72 Census of Manufacturing Establishments). The indexes were on a reference base of 1968-69 = 100.0.
6.2. The index was reviewed in 1990 with a second series introduced from May 1990. The second series' (the current series) composition and weighting pattern is based on the value of production in 1986-87 (as reported in the 1986-87 Census of Manufacturing Establishments). The indexes are on a reference base of 1988-89 = 100.0.
Nature and purpose
6.3. These indexes measure movements in the prices of articles produced by manufacturing industry. For the purpose of the index, manufacturing industry is defined to be establishments classified to the Manufacturing Division of the Australian Standard Industrial Classification (ASIC), 1983 edition. The ABS has recently introduced a new industrial classification, the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993 edition. This classification will be incorporated in the index at the next review of the index.
6.4. The indexes are constructed on a net sector basis. Each index relates only to those articles produced by defined sectors of the Australian manufacturing industry for sale or transfer to other sectors, for export, or for use as capital equipment. Articles which are sold or transferred to other establishments within the sector for further processing are excluded.
6.5. The net sector approach means that:
- The All Manufacturing Industry Index represents price movements of goods which are produced by establishments in the Manufacturing Division, for sale or transfer to establishments outside the Manufacturing Division, for export, or for use as capital equipment. Articles sold or transferred by establishments in the Manufacturing Division to other establishments in that division for further processing are outside the scope of this index. In other words, the pricing and weights for the All Manufacturing Industry Index reflects sales and transfers of articles at the point of exit from the Manufacturing Division.
Composition and weighting
- The net Subdivision Indexes for each of the subdivisions represent movements in prices of goods produced by establishments in the respective subdivisions, for sale or transfer to other subdivisions within the Manufacturing Division or to establishments outside the Manufacturing Division, for export, or for use as capital equipment. The pricing and weights for the net Subdivision Indexes reflect, in general, sales and transfers of articles at the point of exit from the respective Subdivisions.
6.6. Tables 6.1 to 6.14 set out details of the items included in the Division and Sub-division indexes and their relative weights.
6.7. The articles included in the index (i.e. the items) were selected and allocated weights on the basis of the estimated net value of production in 1986-87. In general, an index item equates with an ASIC class (i.e. the 4 digit level within the ASIC).
6.8. The net value of production of each item was estimated using a two stage approach:
- the 'gross' value of production was derived from data collected in the 1986-87 Census of Manufacturing Establishments; and
6.9. In the following areas it was necessary to supplement and/or adjust the Manufacturing Census data:
- the 'gross' values were converted to a 'net sector' basis using relationships about the usage of manufacturing output shown in the 1982-83 Input-Output tables.
- Commission production. In a number of areas of manufacturing (e.g. petroleum refining, refining of metals, clothing production) a significant proportion of production is on a commission basis, i.e. the manufacturer processes the articles concerned on a commission basis for the owner. For these articles, it was necessary to adjust the manufacturing census data to reflect the full value of the articles produced and not just the value of the commission work. The areas where these adjustments were significant were:
- silver, lead and zinc refining; and
- Other income. In some areas, manufacturing establishments derive significant income from activities other than the sale of manufactured articles. In the following cases, these activities have been included within the scope of the index:
- advertising - included in the value of production in the publishing industry (ASIC classes 2641 and 2642). In this area the value of sales does not provide a true measure of the value of production in this industry as a significant number of publications (e.g. suburban newspapers) are either free or have very low cover prices. This reflects the fact that advertising revenue represents a high proportion of the revenue of firms in this industry. A more realistic assessment of the value of production in this industry is therefore obtained if advertising and sales revenue are combined.
Data sources - prices
- repair activities - included in the value of production in the following areas: aircraft, railway stock and locomotives; and ship and boat manufacture (ASIC classes 3241, 3242, 3243 and 3244). In these areas, repair activity is significant and the distinction between repair activity and manufacturing is blurred as repairs include major rebuilding of equipment.
6.10. Price collection is spread over the three months of the quarter Prices are generally obtained from principal manufacturers of the articles concerned, but in some cases prices collected for other indexes are used (adjusted to the correct selling basis, as far as possible). Prices collected are manufacturers' selling prices, exclusive of excise and sales tax, and reflect the effects of subsidies and bounties paid to manufacturers.
6.11. The prices reflect industry selling practices. For example, if costs such as handling and distribution are included in the manufacturer's selling price, this is the price used in the index. Where handling and distribution charges are paid separately by the purchaser, the prices used exclude such charges.
6.12. As far as possible, actual transaction prices are used in the index - the prices actually paid by buyers of manufacturers' products.
Special pricing considerations
6.13. Unique products pose special problems in the measurement of price change as the same product is not produced on an on-going basis. For example, fabricated structural steel where the product is unique to a particular customer, industrial equipment which is built to the customers' design and large ships which are built as one-off designs. In these situations, a technique known as 'model' pricing is used to measure price change. A particular product (or design) of some recent period, which is typical of the firm's output, is specified in detail and becomes the 'model'. The firm is then asked to supply, each month, a price for that 'model', i.e. re-cost the specification at current costs. Although the 'model' product may not be regularly sold (or even sold at all), it does provide a consistent measure of price change over time in a field where the items actually sold vary in terms of design and quality.
Articles sold infrequently
6.14. Some items, especially large items of capital equipment, take a considerable time to construct and are sold on the basis of a contract sale price plus various escalation and supplementary payments over the period of construction. As the item is not sold on a regular basis this poses a problem for estimating prices in those quarters where sales have not occurred. The following techniques are used in these situations:
- the price movements of similar equipment are used to impute price movements for these items; or
- an estimated price is derived using information from the respondent on escalation and other payments; i.e. a price is estimated for a 'notional' item completed and sold in the period in question.