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CHAPTER 14 THE SYSTEM OF PRICE STATISTICS
DIRECT MEASURES OF PRICE CHANGE
14.5 All the principal price indexes described above are direct measures of price change; that is, they are derived through collecting and directly using price data. Each of these is described in the following paragraphs.
14.6 Producer price indexes (PPIs) measure the changes in the prices of goods and services as they either leave the place of production or enter the production process.
14.7 The ABS compiles a suite of quarterly input and output price indexes for different sectors of the Australian economy. As well as indexes relating to fairly narrowly defined components of the economy (such as the materials used in house building), more broadly based indexes are produced that cover significant parts of the economy. In particular, the Stage of Production price indexes cover the whole of the economy for each of the three stages of production (preliminary, intermediate, and final commodities). These measures show both the changes in the prices that producers receive for their outputs, as well as the changes in prices that producers pay for their material inputs. The following indexes are the major PPIs released by the ABS.
14.8 International trade price indexes measure the changes in the prices of goods either as they cross the customs frontier entering Australia or leaving Australia bound for another country. ABS produces two international trade price indexes:
14.9 House price index (HPI) measures the selling prices of houses in each of the eight capital cities. The information is presented in the form of price indexes constructed separately for established houses and for project homes. The index for project homes is compiled for use in calculating the house purchase expenditure class of the CPI. The index for established houses, although not contributing to the CPI, is compiled and published along with the project homes index in recognition of the widespread interest in information specifically relating to housing prices.
14.10 The valuation basis of the HPI is purchasers’ prices. The HPI is published quarterly in House Price Index, Eight Capital Cities (cat. no. 6416.0).
14.11 Labour price index (LPI) measures changes in the price of labour services resulting from market pressures, and is unaffected by changes in the quality and quantity of work performed. Wages and salaries account for the majority of expenditure on labour costs, and an index of wage prices is published quarterly. Non-wage costs (such as superannuation, workers’ compensation, payroll tax and paid holiday leave) cover the remaining part of labour costs. A non-wage price index is published annually, and when combined with the wage price index, the overall labour price index is the outcome.
14.12 As the LPI relates to labour costs incurred by employers in both the private and public sectors, the valuation basis for the LPI is purchasers’ prices. Employers primarily engaged in agriculture, forestry and fishing are outside the scope of the LPI.
14.13 The LPI is published quarterly in Labour Price Index, Australia (cat. no. 6345.0).
DERIVED MEASURES OF PRICE CHANGE
National accounts price indexes
14.14 The Australian National Accounts include implicit price deflators (IPDs), and chain price indexes.
14.15 IPDs are obtained by dividing a current price value by the chain volume measure expressed in dollar terms. Thus IPDs are derived measures (hence the term implicit) and are not normally the direct measures of price change by which current price estimates are converted to volume measures. They reflect both changes in the prices between the two periods and changes in the composition of the aggregate between those periods.
14.16 Because the composition of an aggregate often changes from period to period, IPDs do not compare the price of a constant basket of goods and services between any two periods (except in comparing the base period with any other period). IPDs calculated from quarterly aggregates may be particularly affected by changes in the physical composition of those aggregates. As much of the quarter to quarter change in the physical composition is of a seasonal nature, IPDs derived from seasonally adjusted data are normally more reliable measures of price change than those calculated from unadjusted data. Even so, seasonally adjusting the series may not completely eliminate the effect of seasonal changes on the derived IPDs.
14.17 IPDs are available for Gross Domestic Product; exports of goods and services; imports of goods and services; and domestic final demand, and its four major components. They are published quarterly as part of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0), and Balance of Payments and International Investment Position, Australia (cat. no. 5302.0).
14.18 In contrast, the chain price indexes in the Australian National Accounts provide estimates of pure price change. They are annually re-weighted chain Laspeyres price indexes. These indexes encompass the whole of the economy. The chain price index most akin to the CPI is the index for Household Final Consumption Expenditure (HFCE). The main differences between the two are that the chain index for HFCE is re-weighted annually, and is broader in scope encompassing expenditure by all resident households and non-profit institutions serving households. For example, HFCE includes an estimate of expenditure on gambling, which is not included in the CPI, and it imputes rental payments for owner occupiers.
14.19 An annually chained price index weights price changes together using the previous year's weights for each quarter of the current year. The chain price indexes are calculated from the deflators used to derive the volume estimates, weighted together in the same way and at the same level of detail as the chain volume estimates. In those cases where quantity revaluation is used to derive volume estimates, the implicit price deflator at a detailed level of disaggregation is used in constructing the chain price indexes to minimise the effect of any compositional change.
Which price series should I use?
14.20 Quarter to quarter movements in fixed weighted price indexes are generally consistent with those for chain price indexes, for indexes with similar coverage. In general, for short term analysis of price change, the choice of index formula (fixed weighted or current weighted) has limited effect. Overall, the chain price indexes are considered the most suitable indexes for measuring actual price change, as the effects of compositional change are excluded from these indexes whereas IPDs are affected by compositional change. For more information on the use of price indexes, see Appendix 1.
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