COMMENTARY


STAGE OF PRODUCTION (SOP) OVERVIEW

In September quarter 2008, each of the three stages of production indexes recorded their largest quarterly movements since each series began in the September quarter 1998. The final (Stage 3) index recorded an increase of 2.0%, the intermediate (Stage 2) index recorded an increase of 3.7%, whilst the preliminary (Stage 1) index recorded an increase of 5.5%. Through the year to September quarter 2008, the final (Stage 3) index increased by 5.6%, the intermediate (Stage 2) index increased by 9.7% and the preliminary (Stage 1) index increased by 13.3%.

The increase of 2.0% in the final (Stage 3) index reflects a rise of 1.9% in the price of domestically produced items and a rise of 1.8% in the price of imported items. The domestic component increased due to price rises for building construction (+1.8%), electricity, gas and water supply (+7.4%) and dairy product manufacturing (+5.8%). These increases were partially offset by price falls in motor vehicle and parts manufacturing (-4.2%). The imports component increased due to price rises for industrial machinery manufacturing (+2.2%), other manufacturing (+5.7%) and basic chemical manufacturing (+32.2%).

The increase of 3.7% in the intermediate (Stage 2) index reflects an increase of 3.1% in the price of domestically produced items and a rise of 7.4% in the price of imported items. The domestic component increased due to price rises for coal mining (+192.4%), iron and steel manufacturing (+17.9%) and road freight transportation (+4.9%), partially offset by price falls in grain, sheep and beef farming (-3.7%) and metal ore mining (-4.9%). The imports component increased due to price rises for oil and gas extraction (+11.1%), basic chemical manufacturing (+23.7%) and petroleum refining (+17.7%). These increases were partially offset by price decreases for basic non-ferrous metals (-10.1%).

The increase of 5.5% in the preliminary (Stage 1) index reflects a rise of 4.8% in the price of domestically produced items and an increase of 9.5% in the price of imported items. The domestic component increased due to price rises for coal mining (+192.4%), iron and steel manufacturing (+17.9%) and road freight transportation (+4.9%), partially offset by price decreases in grain, sheep and beef farming (-3.3%). The imports component increased due to price rises for oil and gas extraction (+11.1%), basic chemical manufacturing (+23.7%) and petroleum refining (+16.1%), which were partially offset by price falls for basic non-ferrous metals (-10.1%).

MANUFACTURING INDUSTRIES PRODUCER PRICE INDEXES

During the September quarter 2008, the prices paid by manufacturers for material inputs increased by 6.0%, while the prices they received for their outputs increased by 1.6%. Through the year to September quarter 2008, prices of material inputs increased by 21.1%, while prices for their outputs rose by 10.9%.

Price increases for products from oil and gas extraction (+7.9%) and coal mining (+192.3%) drove the rise in the cost of materials used in the manufacturing industries. Major contributors to these price increases were imported crude oil and black coal. Price decreases for products from dairy cattle farming (-8.5%) provided offsets to the price increases.

The increase in prices received for articles produced by manufacturing industries was mainly due to rises in the price of outputs from meat and meat product manufacturing (+6.4%) - driven by beef, lamb and mutton; basic chemical manufacturing (+13.1%) - driven by fertilisers; and iron and steel manufacturing (+11.8%) - driven by flat rolled steel and steel plate. These increases were partly offset by decreases in the prices received for outputs in petroleum refining (-1.2%).

CONSTRUCTION INDUSTRIES PRODUCER PRICE INDEXES

The price index for materials used in house building rose by 2.6% in the September quarter 2008. This follows consecutive price increases of 1.5% in the June quarter 2008, 1.3% in the March quarter 2008 and 0.9% in the December quarter 2007. The largest contributors to the increase this quarter were price rises for steel products (+22.9%), other metal products (+2.9%) and timber, board and joinery (+1.6%).

Melbourne (+2.5%) contributed the most to the overall weighted average of six capital cities quarterly movement, followed by Perth (+4.2%) and Brisbane (+2.4%). The largest percentage increase was for Adelaide (+5.0%). Increases were recorded for all the state capitals.

Through the year to September 2008, the materials used in house building price index rose by 6.4%. This rise was mainly attributed to increases in prices paid for timber, board and joinery (+6.8%) and steel products (+36.5%). These increases were partly offset by a decrease in prices paid for electrical equipment (-2.5%).

The price index for the output of the general construction industry increased by 1.8% in the September quarter 2008 and by 6.9% through the year. This increase reflects strong price increases across all sectors of the building industry. The common influence on price increases across the construction industry this quarter was price increases in steel and concrete across all states.

Increases in the September quarter 2008 were registered in all contributing industries, with non-residential building construction (+2.2%) contributing the most to the general construction movement, followed by house construction (+1.4%), residential building construction n.e.c. (+1.7%) and road and bridge construction (+3.2%). The increase in road and bridge construction was the largest quarterly movement since the series began in the September quarter 1997, due to high asphalt, steel and concrete prices.

Queensland made the greatest contribution to the increase in the general construction industry (+2.5%) in the September quarter 2008. This was driven primarily by increases in house construction (+2.2%) and non-residential building construction (+2.7%). This was followed by New South Wales (+1.5%) and Victoria (+1.4%).

SERVICE INDUSTRIES PRODUCER PRICE INDEXES

The property and business services industries price index increased by 1.7% in the September quarter 2008 and by 6.0% through the year.

The property services index increased by 1.0% in the September 2008 quarter and by 9.2% through the year. The main contributor to the increase was commercial property operators and developers (+1.5%). The business services index increased by 2.2% in the September quarter 2008 and by 3.9% through the year. The main contributors to the increase were legal services (+5.2%), consultant engineering services (+8.0%), computer consultancy (+2.7%) and accounting services (+2.3%).

The transport (freight) and storage industries index increased by 3.5% in the September quarter 2008 and by 7.7% through the year. The most significant contributors to the increase were road freight transport (+4.9%), international sea transport (+8.3%) and pipeline transport (+10.0%).