PREFACE
Introduction
Background
The review
Consultation process

This information paper presents the outcome of the Review of the Australian Producer Price Indexes (PPIs) and International Trade Price Indexes (ITPIs) undertaken by the Australian Bureau of Statistics (ABS).

The issues considered in the review of the PPIs and ITPIs were set out in the Information Paper: Review of the Producer and International Trade Price Indexes, 2011 (cat. no. 6427.0.55.003), released on 2 September 2011. Submissions were sought from the public on the issues presented and the ABS would like to thank those who provided submissions. This paper contains outcomes on each of the issues considered during the course of this review.

Decisions about changing any aspect of the PPIs and ITPIs are made following careful consideration. The decisions which have been made represent an on–balance view of the type of indexes required to improve the quality of macroeconomic statistics, now and into the next decade.

Changes to the PPIs and ITPIs will begin from the September quarter 2012. A further information paper will be released September 2012. This information paper will provide details such as the weighting patterns for the PPIs that will be adopted and the finalisation of new series.

Readers wishing to obtain further information about the matters covered in this information paper should contact:

Mr Derick Cullen
Director
Macroeconomic Research Section
Australian Bureau of Statistics
PO Box 10
BELCONNEN ACT 2616
Telephone: (02) 6252 7139
Email: < d.cullen@abs.gov.au >

INTRODUCTION

The PPIs and ITPIs produced by the ABS measure inflation by industry to support both the quarterly and annual National Accounts and Balance of Payments calculation of chain volume measures, which form part of the 2008 System of National Accounts (2008 SNA) and Balance of Payments and International Investment Position Manual, sixth edition (BPM6) statistical framework. The indexes are also used for other purposes.

PPIs and ITPIs are key economic indicators in most countries, including Australia. PPIs are part of the International Monetary Fund's (IMF) recommended set of economic indicators. For example, they are included in the Special Data Dissemination Standard (SDDS) expected of advanced economies.

The quarterly Australian PPIs measure the average change in the prices of products (goods and services) as they either enter or leave the production process.

The PPIs are constructed as either: input indexes, measuring the average change in the prices that producers pay for their inputs; or output indexes, measuring the average change in the prices that producers receive for their outputs. The current basis of the input indexes relates to selected products used by an industry for the production of their output. The current basis of the output indexes includes produced products primary to the industry that are sold or transferred within or outside that industry (for further processing, consumption, used as capital equipment, or exported).

Complementing the individual series, the ABS aggregates the individual PPIs and presents them in a way that gives a view of price change for the economy as a whole, by industry. These are the Stage of Production (SOP) price indexes.

The quarterly Australian ITPIs measure the average change in the prices paid for imports and exports of products.
BACKGROUND

The first producer price index compiled by the ABS was the Melbourne Wholesale Price Index, which was introduced in 1912. Export price indexes have been compiled from 1901 by the ABS, while import price indexes were compiled by what is now the Reserve Bank of Australia, from 1928 to 1982.

In April 1975, the Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0) was released. June 1976 saw the release of Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0); May 1983, the release of the Import Price Index, Australia (cat. no. 6414.0); February 1989, the release of Price Indexes of Materials Used in Coal Mining, Australia (cat. no. 6415.0); September 1990, the release of the Export Price Index, Australia (cat. no. 6405.0); March 2000, the release of Producer Price Indexes for Selected Service Industries, Australia (cat. no. 6423.0); and July 2000, the release of Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0).

2001 brought the next evolution of the PPIs, with the June quarter release of Producer Price Indexes, Australia (cat. no. 6427.0) which consolidated the manufacturing, construction, mining, selected services and Stage of Production indexes into one publication. The import and export price indexes were consolidated, from the June quarter of the same year, into International Trade Price Indexes, Australia (cat. no. 6457.0).
THE REVIEW

Historically the PPIs and ITPIs have been reviewed individually for methodological improvement or presentational purposes. This Review of the Producer and International Trade Price Indexes has taken a broad approach to evaluate the concepts, methodologies and data sources of the indexes. Experience with the performance of these statistics during the recent global financial crisis and the outcome of the 2010 IMF Report on the Observance of Standards and Codes (ROSC) for Australia's macroeconomic statistics have contributed to the ABS taking this approach.

The major issues the ABS has evaluated in this review are:

• Principal purpose of the PPIs and ITPIs;
• The future suite of PPIs and ITPIs;
• Quality improvement and coherence of the PPIs and ITPIs; and
• The re–weighting frequency of the PPIs.

The ABS commenced work on the review of the PPIs and ITPIs in mid 2011. This information paper outlines the outcome of the review and sets out the decisions taken regarding the PPIs and ITPIs.


CONSULTATION PROCESS

The ABS undertook public consultation about the PPIs and ITPIs review. This phase commenced on 2 September 2011 with the release of Information Paper: Review of the Producer and International Trade Price Indexes, 2011 (cat. no. 6427.0.55.003).

The ABS sought the views of interested parties in both written and verbal submissions during the course of the review. The ABS is grateful to those who participated in the consultation processes.