CHAPTER 1: SUMMARY OF THE OUTCOME OF THE REVIEW OF THE PRODUCER AND INTERNATIONAL TRADE PRICE INDEXES
Background
Outcome of the Review


BACKGROUND


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

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

1.3 This review has taken a broad approach, considering the concepts, methodologies and data sources of the PPIs and ITPIs.

OUTCOME OF THE REVIEW

PRINCIPAL PURPOSE OF THE PPIs AND ITPIs

Issue

1.4 PPIs are influenced by the choice of principal purpose and this choice determines the scope for the indexes. Many outcomes of the review of the PPIs and ITPIs are guided by the fundamental decision on principal purpose. See Chapter 2: Principal purpose of the Producer and International Trade Price Indexes.


Outcome

1.5 The Australian Bureau of Statistics (ABS) has determined that the principal purpose of the PPIs and ITPIs is to measure inflation by industry to support the compilation of the National Accounts and Balance of Payments. This requires that their compilation be on a basis coherent with the 2008 System of National Accounts (2008 SNA), and Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) statistical framework and on a gross industry basis, and is consistent with supporting other purposes of the PPIs and ITPIs.
THE FUTURE SUITE OF PPIs AND ITPIs

Issue

1.6 The 2008 SNA I–O framework is part of the National Accounts, complementing the quarterly and annual series of national income, expenditure and product aggregates. The tables within the I–O framework (I–O tables) provide detailed information about the supply and use of products in the Australian economy and about the structure of and inter–relationships between Australian industries. The detailed information in the tables are used to derive the weights for the aggregate PPIs and provide the full extent of the PPI and ITPI scope and coverage.

1.7 The I–O framework should be represented by a range of aggregated and disaggregated price series to enhance macroeconomic analysis.

1.8. The PPIs and ITPIs support the principal purpose by reflecting the I–O framework as comprehensively as possible, however the current suite of PPIs do not provide full coverage of the economy. See Chapter 3: The future suite of Producer and International Trade Price Indexes.


Outcome

1.9 The ABS will continue to publish input and output indexes, as this supports the compilation of macroeconomic statistics such as the National Accounts. From the September quarter 2012, the indexes will represent an industry, rather than a product (primary to an industry) view.

1.10 The current SOP index compilation will be retained for the PPIs and ITPIs, providing a transactional flow basis for inflation monitoring. The underlying concepts of the SOP indexes remain unchanged.

1.11 From the September quarter 2012, the ABS will re–weight the individual PPIs and SOP indexes based on the latest available I–O tables (i.e. in respect of 2007–08). The SOP indexes will be reclassified according to the Australian and New Zealand Standard Industrial Classification, 2006 edition (cat. no. 1292.0) (ANZSIC 2006).

1.12 From the September quarter 2012, the ABS will provide further clarification on the concept of the SOP indexes in the Explanatory Notes of the publication Producer Price Indexes, Australia (cat. no. 6427.0) and within an updated Producer and International Trade Price Indexes: Concepts, Sources and Methods publication, which will be released in early 2013. To aid in this clarification, the SOP indexes will be renamed as follows:

• Stage 3 (Final) will become Final Demand – Products consumed as Final Demand;
• Stage 2 (Intermediate) will become Intermediate Demand – Products consumed as inputs into the production of Final Demand; and
• Stage 1 (Preliminary) will become Preliminary Demand – Products consumed as inputs into the production of Intermediate Demand.

1.13 From the September quarter 2014, the introduction of a new computer system will allow the coverage of the PPIs to include non-market price indexes.

QUALITY IMPROVEMENT AND COHERENCE OF THE PPIs AND ITPIs

Issue

1.14 The review examined whether any improvements could be made to the quality of the PPIs and ITPIs, and their coherence with the National Accounts and Balance of Payments. This included: coverage of the PPIs and ITPIs; pricing frequency, pricing coverage and the timing of the release of the PPIs and ITPIs; coherence between price indexes for imports and exports of goods; and the revision policy of the PPIs and ITPIs. See Chapter 4: Quality improvement and coherence of the Producer and International Trade Price Indexes.


Outcome

1.15 The ABS will improve the coverage of the 2008 SNA I-O framework by progressively developing new price indexes, in line with the priorities detailed in this review. Subsequent priorities will be decided upon by the ABS in consultation with key users.

1.16 From the September quarter 2012, the ABS will increase the collection of price observations in the third month of the reference quarter to ensure full quarter coverage. As a result:

• The ABS will delay the timing of the PPI and ITPI publication releases by nine working days, aligning with the National Accounts and Balance of Payments input deadlines; and
• The current timing of the preliminary estimates of imports chain volume measures (CVMs) and implicit price deflators (IPDs) presented in the publication International Trade in Goods and Services, Australia (cat. no. 5368.0) cannot be supported under the revised time frames. The ABS plans to release a new electronic publication presenting the preliminary imports CVMs as soon as practicable after the release of the ITPIs. Following further consultation, details on the future of these data will be announced in the June quarter 2012 release of Balance of Payments and International Investment Position, Australia (cat. no. 5302.0).

1.17 From early 2013, the ABS will fully incorporate the use of the Export Price Indexes (EPIs) and the Import Price Indexes (IPIs) (i.e. the ITPIs) in the compilation of the National Accounts and the Balance of Payments CVMs. This outcome improves the coherence between the ITPIs and the Balance of Payments and National Accounts export and imports of goods chain price indexes and Implicit Price Deflators (IPDs). The ITPIs will continue to be aggregated using weights aligned with International Merchandise Trade Statistics (IMTS) concepts.

1.18 From the September quarter 2014, the ABS will further improve the coherence of the ITPIs with the Balance of Payments and National Accounts export and imports chain price indexes and IPDs. The ABS will broaden the scope of the ITPIs to include International Trade in Services. The ITPIs will change to being aggregated using weights aligned with Balance of Payments and International Investment Position Manual, sixth edition (BPM6) concepts.

1.19 The ABS noted the demand for Average Unit Value (AUV) Merchandise Trade series and will continue to publish the Merchandise Trade value and quantity components which allow their derivation, in the current ABS merchandise trade publications.

1.20 From the September quarter 2014, the PPIs and ITPIs will be revised to accommodate improved data in subsequent quarters. To minimise the impact on those who use the indexes for contract indexation, once revised, indexes will be considered final (barring significant error and respondent corrections). The time period that the statistics will remain open to revision is subject to further investigation.
OTHER ISSUES

Issue

1.21 The review investigated several other issues related to improving aspects of the PPIs and ITPIs i.e. frequency of release; re-referencing; frequency of re-weights; and terminology. See Chapter 5: Other issues.

Outcome

1.22 The ABS will continue to focus on high quality, quarterly PPIs and ITPIs, which support the compilation and analysis of macroeconomic statistics, rather than releasing these series on a monthly basis.

1.23 From the September quarter 2012, the ABS will harmonise the index reference periods for PPIs (including the SOP indexes), ITPIs and the Consumer Price Index. These series will be presented on an index reference period of 2011–12 = 100.0.

1.24 The ABS will increase the frequency of re–weighting the PPIs in line with international recommendations to update weights at a minimum of once every five years. The ABS will undertake additional research to firm up the possibility for more frequent PPI re–weighting. The schedule of release of the National Accounts I–O tables will influence this outcome. The re–weighting frequency of the ITPIs will remain annual.

1.25 From the September quarter 2012, the ABS will adopt 2008 SNA terminology when referencing indexes that align with the 2008 SNA. This will result in some changes to PPI series titles.