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Chapter 11. Import Price Index
Introduction
Import price measures in Australia have a considerable history:
- An import price index was published by the Reserve Bank of Australia (RBA) from 1928 until September 1982.
- The first index of import prices produced by the ABS was introduced in May 1983. This index was compiled quarterly from September Quarter 1981 until June Quarter 1991 (on a reference base of 1981-82 = 100.0).
- A reweighted index of import prices was introduced in September 1991 with index numbers compiled monthly from April 1991 until June 1997. From September quarter 1997 the index reverted to a quarterly cycle. This series has a reference base of 1989-90 = 100.0. The weights are based on the average value of merchandise imports landed in Australia during 1988-89 and 1989-90. The index numbers are published about three weeks after the end of the reference quarter.
Nature and purpose
11.1. The Import Price Index measures changes in prices of imports of merchandise into Australia. The index numbers for each quarter relate to prices of imports landed in Australia during the quarter.
11.2. The main uses of the Import Price Index are for the production of volume estimates by the ABS as a guide to future inflationary trends for macro-economic purposes and the indexation of business contracts.
Composition and weighting
11.3. The index, either directly or indirectly, covers about 95 per cent of merchandise imported during 1988-89 and 1989-90. Ninety three per cent of the items are directly represented. Two per cent of the items are not directly represented, however these items are indirectly represented by directly priced imports whose prices are considered to move similarly. Relevant directly represented items therefore carry not only the weight of priced items but also the weight of these unpriced items.
11.4. Approximately five per cent of all merchandise imported is neither directly nor indirectly represented because of the inherent difficulties in pricing the items to a constant quality. These unrepresented items include:
- live animals (not for food);
- jewellery and other articles of precious metal n.e.s.;
- commodities not classified according to kind;
- works of art, collectors pieces, antiques; and
11.5. The index is a fixed weights index. The items included in the index were selected on the basis of the value of merchandise imports landed in Australia during 1988-89 and 1989-90.
11.9. Table 11.1 (SITC), Table 11.2 (ANZSIC) and Table 11.3 (BEC). at the end of this chapter set out the composition and weighting patterns for classifications used in the Import Price Index (see paragraphs 11.7 to 11.10 for details of the classifications used).
Classifications
11.7. The Standard International Trade Classification (SITC), Revision 3 is the primary classification system for the Import Price Index.
11.8. To comply with international statistical agreements, indexes are also published according to the Combined Australian Customs Tariff and Statistical Nomenclature (Customs Harmonised Tariff), based on the international Harmonised System (HS).
11.9. Indexes are also produced classified according to the 1993 edition of the Australian and New Zealand Standard Industrial Classification (ANZSIC) and the United Nations' Classification by Broad Economic Categories (BEC).
11.10. The composition and weighting pattern for the classifications used in the Import Price Index are shown in Table 11.1 (SITC), Table 11.2 (ANZSIC) and Table 11.3 (BEC).
Data sources
Prices
11.11. Prices of individual shipments are obtained from major importers of the selected items.
11.12. Imports are priced on a free on board country of origin basis. Freight and insurance charges involved in shipping the goods from foreign to Australian ports are therefore excluded from the prices used in the index, as are Australian import duties.
11.13. Prices for specified goods are, in general, collected each month from importers. In some instances, e.g. infrequently imported goods, importers may be asked to provide prices each quarter rather than monthly.
11.14. All prices used in the Import Price Index are expressed in Australian currency. As a result, changes in the relative values of the Australian dollar and overseas currencies can have a direct impact on price movements of imports that are purchased in foreign currencies. Prices reported in a foreign currency are converted to Australian dollars using the relevant exchange rates. Where foreign currency purchase prices use forward exchange cover, the prices used in the index exclude the forward exchange cover.
Weights
11.15. The weighting patterns provided in Table 11.1 (SITC), Table 11.2 (ANZSIC) and Table 11.3 (BEC) are the 'regimen item' weights and remain fixed between reviews of the index.
11.16. The data sources used to derive the weights were the values of Australian imports of merchandise during 1988-89 and 1989-90. See paragraphs 11.3 and 11.4 for details of indirectly represented commodities and exclusions.
11.17. Weighting at the sub-regimen level (usually equating to the 5 digit level of the SITC) is not fixed and may vary from time to time. This allows for the replacement of obsolete commodities and for changes in import patterns that may take place between index reviews. Sample weights used at this sub-regimen level reflect the latest available patterns of imports derived from foreign trade data. These sample weights are kept under continual review, as discussed in Chapter 12.
Special pricing considerations
Infrequently imported commodities
11.18. A number of items for which prices are collected are not imported on a regular basis, causing problems in deriving price changes in periods between shipments. Several methods are employed in an attempt to overcome this problem:
- the frequency of the pattern of imports is a consideration in selecting importers as respondents;
- prices for periods in which no shipments occur may be estimated using exchange rate variations in the value of the Australian dollar during these periods. That is, the assumption is made that the foreign currency price has not changed since the previous shipment and that the only factor affecting the price is the value of the Australian dollar relative to the transaction currency; or
- commodities traded in world markets (e.g. some metals) may have their prices estimated between shipments by reference to prevailing commodity prices as quoted by sources such as commodity exchanges. These sources are also used to verify reported price movements and expected trends.
Pricing of transferred goods
11.19. Items may be imported from a 'parent' or affiliated company overseas at a 'transfer' price. This transfer of goods, which does not take place in the open market, can present problems for measuring price changes. In such cases importers are requested to provide realistic market prices wherever possible.
Pricing to constant quality
11.20. For a number of items imported it is not always possible to price an identical specification over any length of time. In some instances an item of a particular specification may only be imported on a 'one off' basis. As an example, items such as industrial machinery may be imported to the importer's specification. Solutions could include:
- the pricing of a 'base model' rather than an item which may consist of the 'base' but have different options or specifications each time it is imported; and
- (the use of 'model pricing' to calculate the price of the various components of a 'dummy' item each period.
11.21. In some areas items are constantly changing through technological change, changes in demand, production techniques, etc. Electronic equipment and motor vehicles are just two examples where models, and their quality, are constantly changing. As with all ABS price indexes, considerable attention is given in such cases to ensure that any price used in the production of an index has been adjusted to remove the impact of quality change. See Chapter 14 for a more detailed discussion of the treatment of quality change.
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