CHAPTER 6 – OTHER ISSUES


INTRODUCTION

6.1 This chapter contains issues related to improving aspects of the Producer and International Trade Prices Indexes (PPIs and ITPIs). These issues are presented either for information or for user comment.


RE–REFERENCING THE PRODUCER AND INTERNATIONAL TRADE PRICE INDEXES

6.2 The index reference period of the PPIs, ITPIs and all other ABS price indexes (with the exception of the Labour Price Index) will be harmonised.

6.3 These series will be presented on a reference base of 2009–10 = 100.0, commencing with the September quarter 2012 Consumer Price Index (CPI).

6.4 Re-referencing should not be confused with re-weighting. The index reference period is the period in which all index numbers have a value of 100.0.


FREQUENCY OF RE–WEIGHTING THE PRODUCER PRICE INDEXES

Background

6.5 The frequency of re-weighting the PPIs will be reviewed.

6.6 The quantities underlying the weighting patterns remain fixed over the life of the basket. Over time, production activity shifts in response to economic conditions and changing production functions. The relative importance of products and industries changes and it is important to update the basket and item weights periodically to reflect changes in the range of products produced, consumed, imported and exported. Currently, ITPIs are re-weighted on an annual basis, whereas the PPIs are less frequently updated.

6.7 The International Monetary Fund (IMF) recommends statistical offices periodically update the weights in the PPI to reflect these changes in market structure. Best practice suggests that this be done at least once every five years (IMF, 2004).

6.8 The main data source for PPI weight updates is the Australian National Accounts Input–Output (I-O) tables. The frequency at which the Australian PPI is re-weighted is constrained by the frequency of the I-O tables release. The production of I-O tables is not accounted for within the ABS baseline budget and is dependant on additional government funding. The recent history of I-O table releases (by reference period) is listed below:

• 2006–07, released 23/12/2010
• 2005–06, released 18/11/2009
• 2004–05, released 19/11/2008
• 2001–02, released 06/07/2006
• 1998–99, released 29/06/2004

Re–weighting the PPIs

6.9 When the PPIs were updated to the Australian and New Zealand Standard Industrial Classification (ANZSIC06) in the September quarter 2009, 2001–02 I–O tables were used to update the underlying weights. The Stage of Production (SOP) indexes remained on the 1989–99 version. With the latest set of I-O tables (2007–08) scheduled for release in late 2011, the PPIs and SOP indexes are scheduled to be re-weighted for the September quarter 2012 using the latest I-O data, price updated to June quarter 2012.

Areas of research

6.10 Weight updates to the PPIs may not be required on an annual basis (or with each I-O table update), however the recommended 5 yearly re-weight frequency has not been adopted in the past by the ABS. This is in part due to stable product contribution to the economy and the timing the I-O tables release. As part of the PPI review however, the ABS will examine:

• the indicators of change which may justify more frequent re-weights;
• the ability to undertake more frequent weight updates of the PPIs; and
• where possible, assess the impact of out-of-date weights on the indexes in terms of any systematic bias.
  

Sample maintenance

6.11 To maintain the relevance of the indexes in between re-weights, the ABS undertakes a continuous sample maintenance program which is focussed on ensuring the detailed specifications priced and the respondents from which prices are obtained, remain representative. The research undertaken as part of sample maintenance maintains the representativeness of the samples and allows for quality change assessments.


IMPORT AND EXPORT PRICE MEASUREMENT

Background

6.12 The ITPIs are released by the ABS within a broader set of macroeconomic statistics. As discussed previously in Chapter 5 under the heading Statistical coherence, there are differences between the export price index (EPI) and the Australian National Accounts (ANA) exports of goods implicit price deflator (IPD), and the import price index (IPI) and the ANA imports of goods IPD.

Drivers of difference

6.13 The differences within the macroeconomic statistics are mainly due to the index methodology, the completeness of the dataset used and the source of the data.

6.14 The first difference relates to index construction. The ITPIs are annually re-weighted fixed basket price indexes, compared to the quarterly re-weighted IPD index, which includes period to period price change and compositional change (when prices of products in one quarter are not comparable with products in the next).

6.15 Secondly, pure price indexes, such as the EPI and IPI, are constructed by measuring representative transactions, that is, transactions which can be observed over time to constant quality and quantity. IPDs, however, are produced as a residual of nominal values and volume measures.

6.16 Thirdly, the volume and value data used to derive an IPD are likely to include more transactions than is possible to price over time for a pure price index.

6.17 Fourthly, complete data for the entire third month of the quarter are not available for some components of the EPI and IPI due to their timing of release (this is discussed in detail in Chapter 5).

6.18 Fifthly, the EPI is calculated from selected representative transactional data, whereas the export of goods IPD is calculated from predominantly International Merchandise Trade data. For example EPI products are selected based on the significance of their average export value in the two years preceding each index year (e.g. 2008–09 and 2009–10 for the 2010–11 index). These methodological differences can result in divergences between the measures when prices of products are volatile.

6.19 Lastly, IPDs are revised whereas the ITPIs are not. The ITPI numbers are “final” and are subject to revision only to correct a substantial error, not to take on board revised data.

6.20 To control for compositional shift present in the IPD, the ANA also incorporate Imports and Exports of goods chain price indexes. These indexes rely on the same underlying weighting pattern as the IPD, albeit on a chained annual re-weighting schedule rather than the IPDs quarterly re-weighting frequency. The ITPIs are annually re-weighted chained Laspeyres indexes.

6.21 The ABS will more formally document the drivers of the differences between macroeconomic price measures of imports and exports during this review.


CONSISTENCY OF TERMINOLOGY

6.22 The ABS intends to review and standardise the terminology used to describe the PPIs and ITPIs, such as articles (as used in the index heading Articles Produced by Manufacturing Industries) and materials (as used in the index heading Materials Used in Manufacturing Industries ) when product is the current accepted ABS term. Terms like gross and net sector will also be amended to relate to industry.


USER COMMENTS

6.23 Users are invited to comment on:

• Whether the frequency of PPI re-weighting impacts upon users; and
• Whether there are any additional issues not covered by this information paper.