International Trade Price Indexes, Australia methodology

Both the Import Price Index and the Export Price Index have been reweighted in the September quarter 2020. These indexes are reweighted annually each September quarter, as explained in the Explanatory Notes under Items and weights. The current weighting patterns for both the Import Price Index and Export Price Index, based on the Standard International Trade Classification (SITC) Revision 4, are presented in this Appendix.

All SITC sections and divisions are included in the reweighted index structure for completeness. However, indexes for some of the lower weighted SITC divisions are not constructed separately and so are not available for publication.

Corresponding weighting patterns based on classification by Broad Economic Categories (BEC), Harmonized Tariff Item Statistical Classification (HTISC) and Australian and New Zealand Standard Industrial Classification (ANZSIC) for the Import Price Index, and Australian Harmonized Export Commodity Classification (AHECC) and ANZSIC for the Export Price Index, can be made available on request.

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The International Trade Price Indexes (ITPI) measure the changes in the prices paid for imports of merchandise that are landed in Australia each quarter, and prices received for exports of merchandise that are shipped from Australia each quarter.

The Import Price Index is an input price index measuring changes in prices of imports of merchandise into Australia. Imports are priced on a free on board (f.o.b.) country of origin basis. The Export Price Index is an output index measuring changes in the prices of all exports of merchandise from Australia, including re-exports (goods which are imported into Australia then exported without alteration). Exports are priced on a free on board (f.o.b.) basis at the main Australian port of export. As the prices used in the indexes are expressed in Australian currency, changes in the relative value of the Australian dollar and overseas currencies can have a direct impact on price movements for the many commodities that are bought and sold in currencies other than Australian dollars. Prices reported in a foreign currency are converted to Australian dollars using relevant exchange rates. Where imports or exports are transacted in prices expressed in terms of a foreign currency and forward exchange cover is used, the prices in the indexes exclude the forward exchange cover.

The ITPI are used by the government and private sector for a variety of purposes, including:

• as deflators in the Australian National Accounts and Balance of Payments;
• as a short-term indicator of inflationary trends;
• for indexation in legal contracts in both the public and private sectors;
• to inform business and government policy decisions; and
• by international organisations such as the OECD and the IMF for economic monitoring and comparison.
   

The ITPI are released each quarter (three months ending March, June, September and December). The data are released no later than 33 days after the end of the reference quarter.

The ITPI measure price changes, over time, in commodities imported to, and exported from, Australia. The main source of ongoing price data is samples of businesses; prices of individual shipments are obtained from a large number of importers and exporters. The sheer volume and complexity of these transactions mean that a non-probability sampling method is more practicable and efficient than probability sampling methods. A non-probability sampling method involves choosing producers based on the relative importance of the products they sell for exports or buy for imports, who they sell to, or buy from, and the nature of their pricing policies.

There are two principal sources of error in surveys: non-sampling error and sampling error. Non-sampling error arises from inaccuracies in collecting, recording and processing the data. Every effort has been made to reduce non-sampling error in the ITPI, by:

• careful design of questionnaires and processing systems, and by providing instructions to businesses on how to price a relevant sample of import and export transactions;
• detailed checking of completed survey forms; and
• instituting a range of procedures to ensure that transactions are priced to constant quality and quantity.
   

Sampling error occurs when a sample or subset of the population is surveyed, rather than the entire population. One measure of the likely difference resulting from not including all of the population in the survey is given by the standard error. While the selection of import and export transactions are based on sampling techniques, standard errors are not available for the ITPI. While it is reasonably straightforward to calculate sampling errors for a level estimate, it is not so straightforward to determine standard errors for the ITPI which uses both sampling and index methodologies.

Prices for most items are collected once a month or once a quarter, with the collection spread across that period. As far as possible the prices used in the indexes are actual transaction prices. All prices used in the ITPI are expressed in Australian currency. As a result, changes in the relative value of the Australian dollar and overseas currencies can have a direct impact on price movements of commodities transacted in foreign currencies.

The ITPI rely heavily on specification pricing; however, for items that are homogeneous and where quality change is minimal, e.g. basic commodities from the mining and agricultural sectors, it can be more efficient to selectively use average unit values as price estimators. Where index accuracy is not compromised, the use of average unit values reduces cost and respondent burden and, in some cases, provide increased robustness and coverage to price estimation. The ABS has access to a rich source of international merchandise trade data, and selectively uses average unit values in the Export Price Index to augment specification pricing. Imported commodities are typically more stable in price but non-homogenous in character, and generally do not lend themselves to measurement by average unit value.

Index numbers are released as final figures at the time they are first published. Revisions will occur only in exceptional circumstances.

The ITPI is released by the ABS within a broader set of macroeconomic statistics. There are differences between the Export Price Index and Import Price Index presented in this publication, and the export and import of goods IPD presented in 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). These differences are mainly due to the index methodology. The ITPI are annually weighted indexes whereas IPDs are quarterly weighted indexes, which include price change and compositional change from period to period. These differences can result in significant divergences between the measures when prices of commodities are volatile.

The Import Price Index, Australia (cat. no. 6414.0) and Export Price Index, Australia (cat. no. 6405.0) are important economic statistics with each measure having a considerable history. The first index of import prices produced by the ABS was introduced in May 1983 and an index of export prices, of one form or another, has been published by the ABS since 1901.

The Import and Export Price Indexes were published separately until March quarter 2001. Starting from June quarter 2001, the publications were integrated and the key series published in International Trade Price Indexes, Australia (cat. no. 6457.0).

The ITPI are annually reweighted chained Lowe indexes. The import index items are selected based on the significance of their import value in the year preceding the index year (e.g. 2019-20 for the 2020-21 index). The export index items are selected based on the significance of their average export value in the two years preceding each index year (e.g. 2018-19 and 2019-20 for the 2020-21 index).

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

• movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers);
• movements between corresponding quarters of consecutive years; and
• movements between consecutive quarters.
   

Care should be exercised when interpreting quarter-to-quarter movements in the indexes, as short-term movements do not necessarily indicate changes in trends.

The International Trade Price Indexes, Australia (cat. no. 6457.0) contains Explanatory Notes that provide information about the structure, weights, data sources and other technical aspects of the series. Further information is available in Producer and International Trade Price Indexes: Concepts, Sources and Methods (cat. no. 6429.0) and in Information Paper: Review of the Import Price Index and Export Price Index, Australia (cat. no. 6424.0).

Detailed information, including a range of time series spreadsheets, can be found in the 'Data downloads' section of the International Trade Price Indexes, Australia (cat. no. 6457.0) webpage. For links to data and publications relating to the Producer Price Indexes and other price indexes, please see Price Indexes and Inflation.

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