CHAPTER 1 – SUMMARY: ISSUES ON WHICH THE ABS SEEKS USER VIEWS


BACKGROUND

1.1 The quarterly Producer Price Indexes (PPIs) measure the average change in the prices of products (goods and services) as they either leave the place of production or enter the production process. The quarterly Australian International Trade Price Indexes (ITPIs) measure the average change in the prices paid for imports of products that are landed in Australia and the average change in the prices received for exports of products that are shipped from Australia.

1.2 Historically the PPIs and ITPIs have been reviewed individually for methodological improvement or presentational purposes.

1.3 This review will take a broad focus, considering the concepts, methodologies and data sources of the PPIs and ITPIs.

1.4 As part of the review process, the ABS will provide opportunity for user involvement in the evolution of the indexes. Organisations or individuals are invited to make written submissions on any aspect of the review. For details, see Preface – Consultation process.

1.5 The review will examine the issues listed below.


ISSUES TO BE CONSIDERED

Principal purpose of the PPIs and ITPIs

1.6 Chapter 2 discusses the principal purpose of the PPIs and ITPIs (the Indexes).

1.7 The main conclusion is that the principal purpose of the PPIs and ITPIs is for the deflation (or inflation) of the values of a number of components in the Australian National Accounts (ANA) and Balance of Payments (BOP). As a result, the ABS gives priority for the use of the PPIs and ITPIs in the ANA and BOP, their construction (where applicable) must be on the most coherent basis to the ANA. For the PPIs that is on the gross industry approach.

1.8 The secondary purpose, monitoring short term inflationary trends, is provided for by the Stage of production (SOP) indexes, which are specifically designed for this purpose. The SOP indexes inform on inflationary trends by an economic categorisation of transactions according to their sequencing in the production chain.

1.9 At the end of Chapter 2, users are invited to comment on:

• Whether the principal purpose of the PPIs and ITPIs is for the provision of price indexes for ANA and BOP compilation and therefore that the gross industry approach is the most appropriate; and
• The usefulness and demand for additional PPIs on the alternative, net industry basis.

Coverage of the PPIs and ITPIs and meeting stakeholder requirements

1.10 Chapter 3 discusses the coverage of the PPIs and ITPIs and meeting stakeholder requirements.

1.11 The main conclusion is that ideally they should cover all production unit transactions as presented within the ANA and BOP.

1.12 Currently, the PPIs are based on a subset of transactions; firstly representing primary products, rather than all products and secondly, covering a greater number of goods than services.

1.13 The ABS will increase coverage with reference to ANA and BOP requirements. The ABS will evaluate user feedback to develop a longer term strategy to meet user needs.

1.14 At the end of Chapter 3, users are invited to comment:

• From the perspective of improving the ANA and BOP, whether users agree with the named coverage expansion priorities for the PPIs and ITPIs;
• On whether there are additional areas of priority for PPI and ITPI coverage and/or quality improvement; and
• On whether there is a need for additional index structures (eg. Division PPIs) within the proposed Input-Output (I-O) organising structure.

The organising structure for the PPIs and ITPIs

1.15 Chapter 4 discusses the organising structures of the Indexes.

1.16 The main conclusions is that an organising structure for the PPIs and ITPIs should provide a framework to draw together price series to enhance inflation analysis. The review will consider the value of the Analytical Framework for Price Indexes, assessing the Stage of production (SOP) and Domestics Final Purchases (DFP) indexes for their ability to support the study of inflation.

1.17 Alternative organising structures will be evaluated, including a whole of economy input and output structure, which organises input and output indexes by industry. The United Stated Bureau of Labor Statistics (BLS) PPI program's experimental aggregation system will also be investigated.

1.18 At the end of Chapter 4, users are invited to comment on:

• Whether the SOP framework is the most fit for purpose organising structure for the PPIs and ITPIs;
• If the SOP indexes are retained, whether the whole of economy I-O organising structure should be implemented in addition to SOP; and
• The usefulness of implementing the DFP indexes and continuing to develop and populate indexes as per the Analytical Framework for Price Indexes.

Frequency and timing of the PPIs and ITPIs releases

1.19 Chapter 5 discusses the frequency and timing of the Indexes release.

1.20 The main conclusion is that currently, in order to release the PPIs and ITPIs within a month of the end of the reference period, and before the CPI release, it is not possible to cover all transactions occurring during the third month of the reference quarter.

1.21 Given the volatility in price of some products, strategies for improving the coverage of the third month of the reference period will be considered, taking into account the competing priorities of timing and accuracy of the output. Delaying the timing of release for PPIs and ITPIs is the preferred strategy to accommodate improved pricing coverage of the third month of the reference quarter.

1.22 The demand for more frequent releases of the PPIs and ITPIs has previously been explored. The ABS position is that monthly PPIs would not represent value for money and would divert resources away from the production of higher priority outputs.

1.23 At the end of Chapter 5, users are invited to comment on how the proposed timing of and frequency release options may impact users.

Other issues

1.24 Chapter 6 discusses other issues.

1.25 The main conclusion is that re-referencing of the PPIs and ITPIs, as well as those for all related ABS price series (except the Labour Price Index), will be harmonised to a consistent index reference period of 2009–10 = 100.0.

1.26 The frequency of re-weighting the PPIs will be reviewed. The quantities underlying the weighting patterns in the weight reference period 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 will change and the index basket should be re-weighted to remain representative. The ABS will examine the ability to undertake more frequent weight updates of the PPIs into the future, and where possible, quantify the impact of weighting frequency.

1.27 The ABS will more formally document the drivers of the difference between the import and export price measures within the ITPIs, ANA and BOP.

1.28 The ABS will evaluate the consistency and appropriateness of the terminology used within ABS releases, such as the terms articles and materials.

1.29 At the end of Chapter 6, 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.