COMMENTARY


STAGE OF PRODUCTION (SOP) OVERVIEW

In March quarter 2008, each of the three stages of production indexes recorded increases. The final (stage 3) index recorded a 1.9% increase in the March quarter 2008. This increase is the largest quarterly increase for the final (stage 3) index since the series began in the September quarter 1998. The intermediate (Stage 2) index also increased, by 2.0%, with an increase of 2.3% for the preliminary (Stage 1) index. Through the year to March quarter 2008, the final (Stage 3) index increased by 4.8%, the intermediate (Stage 2) increased by 6.0% and the preliminary (Stage 1) index increased by 6.9%.

The increase in the final (Stage 3) index reflects a rise of 2.0% in the price of domestically produced items, which is the largest quarterly increase since the series began in September quarter 1998. Prices of imported items recorded an increase of 0.6% in the March quarter 2008. The domestic component increased due to price rises for building construction (+1.9%), petroleum refining (+10.7%), electricity, gas and water supply (+3.1%) and real estate agents (+4.4%). The imports component increased due to price rises for dairy product manufacturing (+32.9%), motor vehicle and parts manufacturing (+1.4%) and petroleum refining (+8.2%). These increases were partially offset by price falls in industrial machinery manufacturing (-2.2%) and clothing manufacturing (-6.7%).

The increase of 2.0% in the intermediate (Stage 2) index reflects an increase of 1.8% in the price of domestically produced items and a rise of 3.7% in the price of imported items. The domestic component increased due to price rises for petroleum refining (+12.4%) and property operators and developers (+3.1%), partially offset by price falls in metal ore mining (-2.5%). The imports component increased due to price rises for oil and gas extraction (+11.2%) and petroleum refining (+12.0%). These were partially offset by price decreases for iron and steel manufacturing (-3.9%).

The increase of 2.3% in the preliminary (Stage 1) index reflects a rise of 2.0% in the price of domestically produced items and an increase of 4.9% in the price of imported items. The domestic component increased due to price rises for petroleum refining (+12.4%) and property operators and developers (+3.1%), and was partially offset by price decreases in metal ore mining (-2.4%). The imports component increased due to price rises for oil and gas extraction (+11.2%), basic chemical manufacturing (+5.1%) and petroleum refining (+11.1%). These were partially offset by price falls for iron and steel manufacturing (-3.6%).

MANUFACTURING INDUSTRIES PRODUCER PRICE INDEXES

During the March quarter 2008, the prices paid by manufacturers for material inputs increased by 3.8%, while the prices they received for their outputs increased by 3.1%. Through the year to March quarter 2008 , prices of material inputs increased by 11.9%, while prices for their outputs rose by 6.9%.

Price rises for products from oil and gas extraction (+10.2%) and grain, sheep and beef farming (+4.3%) drove the rise in the cost of materials used in the manufacturing industries. Major contributors to these price increases were crude oil, sheep, lambs, cattle and calves. Price decreases for products from gas supply (-2.2%) and other crop growing (-4.0%) provided offsets to these price increases.

The increase in prices received for articles produced by manufacturing industries was mainly due to rises in the price of outputs from petroleum refining and meat and meat product manufacturing. Major contributors to these price increases were diesel, unleaded petrol and beef (fresh and frozen). These increases were partly offset by decreases in the prices received for outputs from basic non-ferrous metal manufacturing. Contributors to these price decreases were price falls in recovery of zinc and lead.

CONSTRUCTION INDUSTRIES PRODUCER PRICE INDEXES

The price index for materials used in house building rose by 1.3% in the March quarter 2008 and by 3.7% through the year to March quarter 2008. This follows consecutive price increases of 0.9% in the September quarter 2007 and 0.9% in the December quarter 2007. The largest contributors to the increase this quarter were price rises for timber, board and joinery (+2.1%), ceramic products (+2.4%), and other metal products (+0.8). These price increases were partially offset by falls in prices paid for electrical equipment (-1.4%).

Melbourne's increase of 1.4% contributed the most to the overall weighted average of six capital cities quarterly movement. Increases were recorded for all the state capitals.

The price index for the output of the general construction industry increased by 1.9% in the March quarter 2008, and by 6.2% through the year to March quarter 2008. The largest contributor this quarter was the index for house construction (+1.8%), followed by non-residential building construction (+2.0%), residential building construction n.e.c. (+1.9%), and road and bridge construction (+1.6%).

Victoria's increase of 2.4% and New South Wales's increase of 1.9% made the largest contributions to the quarterly movement of the price index of the general construction industry. The results for these states were driven primarily by increases in house construction prices, however non-residential building construction was also a significant contributor in Victoria. Queensland and Western Australia's increases of 1.5%, also contributed positively, due to increases in house building construction and non-residential building construction prices respectively.

SERVICE INDUSTRIES PRODUCER PRICE INDEXES

The property and business services industries price index increased by 1.6% in the March quarter 2008, and by 6.3% through the year to March quarter 2008.

The property services index increased by 3.1% in the March 2008 quarter, and by 11.6% through the year to March quarter 2008. The main contributors to the quarterly increase were commercial property operators and developers (+3.1%) and real estate agents (+4.5%). The business services index increased by 0.6% in the March quarter 2008 and by 2.7% through the year to March quarter 2008. The main contributors to the quarterly increase were business management services (+3.4%), advertising services (+2.9%) and business services n.e.c. (+2.8%). These increases were partially offset by a decrease in contract staff services (-1.9%).

The transport (freight) and storage industries index increased by 1.4% in the March quarter 2008, and by 3.0% through the year to March quarter 2008. The most significant contributors to the quarterly increase were road freight transport (+2.2%) and rail transport (+0.9%). These increases were partially offset by decreases in international sea transport (-1.0%).