CHAPTER 3 HISTORICAL BACKGROUND


INTRODUCTION

3.1 The Australian Producer Price Indexes (PPIs) and International Trade Price Indexes (ITPIs) are key economic indicators. This chapter provides a history of their development in Australia. It also outlines changes resulting from the PPI and ITPI Review completed in 2012.

3.2 The Australian PPIs and ITPIs are used for a variety of purposes. As outlined in Chapter 2, the principal purpose is to measure inflation by industry to support the compilation of the Australian National Accounts and Balance of Payments. Other uses of PPIs include indexation of contracts, economic monitoring and international comparisons.


THE FIRST PRODUCER PRICE INDEXES

3.3 The first PPI compiled by the ABS was the Melbourne Wholesale Price Index. This index was introduced in 1912 with historical index numbers compiled from 1861. Prices were obtained from newspapers and trade publications. The index was compiled until 1961. The index primarily included basic materials and food stuffs, weighted together using consumption data from 1910. Neither the list of products nor the weighting varied during the life of the index. A description of the index and a list of the products priced were published in Labour Report No. 38, 1949 (cat. no. 6101.0).

3.4 The Wholesale Price (Basic Materials and Foodstuffs) Index was introduced in 1939 with historical index numbers available from 1928. The index was compiled until 1970. The prices used in the index were, in the main, obtained directly from manufacturers and merchants in Melbourne (with a few important exceptions). Products in the index were priced in their basic form wherever possible and in respect of imported materials as near as possible to the point where they made their first effective impact on the local price structure. The weights were based on estimates of the average annual consumption of the products in Australia during the period 1928-29 to 1934-35 inclusive. A list of the products included and other information concerning the index were last published in Labour Report No. 53, 1967 (cat. no. 6101.0).


RECENT CHANGES

3.5 Over the 1960s, 1970s and 1980s a number of new indexes were introduced. These included monthly input indexes of the building construction industry, monthly input and output indexes of the manufacturing industry, and monthly input indexes of the coal mining industry. From 1997 these indexes were compiled and published on a quarterly basis. From 2000 the ABS introduced quarterly construction industry output price indexes, services industries output price indexes, and stage of production price indexes. From the June quarter 2001 a number of PPI industry publications were amalgamated into a single publication, Producer Price Indexes, Australia (cat. no. 6427.0).

3.6 An industry approach to defining and weighting the PPIs was adopted from the September quarter 2012 as a result of the PPI and ITPI Review 2012. This approach replaced the product approach. As a consequence, the PPIs are compiled using weights and prices for products used by, or produced by, businesses classified to industries as defined in the Australian and New Zealand Standard Industry Classification (ANZSIC) 2006. The titles of the indexes were also changed to reflect the industry approach. More information on the outcome and implementation of the review of the PPIs and ITPIs is provided in Chapter 14.

3.7 The following section describes the suite of PPIs and ITPIs published by the ABS.


MANUFACTURING INDUSTRIES PRODUCER PRICE INDEXES

Output of the Manufacturing industries

3.8 The price indexes of articles produced by manufacturing industries were first published in June 1976 in the Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0), with monthly indexes compiled from July 1968. The structure and weights of the indexes were sourced from the value of production in 1971-72 (as reported in the 1971-72 Census of Manufacturing Establishments). The index reference period was 1968-69 = 100.0.

3.9 The index was reviewed in 1990 with changes implemented from May 1990. The weights for this index were sourced from the value of production in 1986-87 (as reported in the 1986-87 Census of Manufacturing Establishments). The index reference period was 1988-89 = 100.0.

3.10 The frequency of these indexes was changed from monthly to quarterly from the September quarter 1997.

3.11 These indexes were again reviewed in 2000. The products included in the indexes were selected based on the values of articles produced in 1993-94. The selected products were allocated weights in accordance with the estimated value of manufacturing production in 1993-94 valued at the prices applicable in the June quarter 2000. The indexes were re-referenced to 1989-90 = 100.0.

3.12 From the September quarter 2000 the presentation of these indexes was changed to reflect the updated weighting patterns and the adoption of ANZSIC 1993. The new weights for the manufacturing division indexes and the associated ANZSIC subdivision and group price indexes were shown in Appendix B of the September quarter 2000 issue of Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0).

3.13 The publication Price Indexes of Articles Produced by Manufacturing Industry, Australia (cat. no. 6412.0) was combined with several other PPI publications in the June quarter 2001 to form a new publication Producer Price Indexes, Australia (cat. no. 6427.0). The latter publication presented an economy wide framework for PPIs, with the Stage of Production (SOP) indexes as the headline indicators.

3.14 From the September quarter 2012 the presentation of the indexes was changed to reflect the 2006 edition of ANZSIC and weights were updated using data from the 2007–08 Australian National Accounts: Input–Output (I–O) Tables. The index of articles produced by manufacturing industries, was renamed Output of the Manufacturing industries and the index reference period updated to 2011–12 = 100.0. From the September quarter 2015 the Output of the Manufacturing industries index weights were updated using data from the 2012–13 Australian National Accounts: Input–Output (I–O) Tables.


Input to the Manufacturing industries

3.15 The Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0) was first published in April 1975. The index reference period was 1968-69 = 100.0 and had weights sourced from the value of estimated manufacturing materials usage in 1971-72. Monthly index numbers were compiled for the period July 1968 to November 1985. A description of this series, including its composition and weighting pattern, was provided in the April 1975 issue of Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0).

3.16 The indexes were reviewed in 1985, with their composition and weights sourced from values of materials used in manufacturing in 1977-78. The reviewed indexes were introduced from December 1985 with an index reference period of 1984-85 = 100.0.

3.17 The indexes were reviewed again in 1996. This review resulted in several changes to the indexes. The underlying classification of the indexes was changed from the Australian Standard Industrial Classification (ASIC) 1983, to ANZSIC 1993. The composition and weights of the indexes were sourced from values of materials used in 1989-90. The indexes were also re-referenced to 1989-90 = 100.0. Index structures and weights were shown in Appendix A of the July 1996 issue of Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0).

3.18 The frequency of these indexes was changed from monthly to quarterly from the September quarter 1997.

3.19 The Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0) was discontinued and data included in Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

3.20 From the September quarter 2012 the presentation of the indexes was changed to reflect the 2006 edition of ANZSIC and weights were updated using data from the 2007-08 I-O tables. The index of Materials used in manufacturing industries was renamed to Input to the Manufacturing industries and the index reference period updated to 2011-12 = 100.0. From the September quarter 2015 the Input to the Manufacturing industries index weights were updated using data from the 2012–13 Australian National Accounts: Input–Output (I–O) Tables.


Price Indexes of Copper materials

3.21 The price indexes of copper materials were first published in the October 1972 issue of Price Indexes of Metallic Materials (cat. no. 6410.0) as the Price Indexes of Copper Materials Used in the Manufacture of Electrical Equipment. The indexes were published for the period July 1968 to August 1983 and presented with an index reference period of 1968-69 = 100.0. The October 1972 issue of Price Indexes of Metallic Materials (cat. no. 6410.0) and in Labour Report No. 57, 1972 (cat. no. 6101.0) also included the weights of the indexes.

3.22 The publication Price Indexes of Metallic Materials (cat. no. 6410.0) was discontinued from September 1983 to May 1984 due to deficiencies in the price samples.

3.23 Revised indexes with an index reference period of 1983-84 = 100.0 were introduced in June 1984. Data were published monthly, with an historical series from July 1983. The Appendix to the June 1984 issue of Price Indexes of Metallic Materials, Australia (cat. no. 6410.0) provides a detailed description of the revised indexes, including their structure and weights.

3.24 In January 1986, the title of the publication was changed and the series for the other metallic materials (iron and steel, aluminium, copper and brass, and zinc) were included in Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0).

3.25 The indexes have been compiled and released on a quarterly basis since the September quarter 1997.

3.26 In 2002 the indexes were re-weighted using data from the 1998-99 financial year and re-referenced to 1989-90 = 100.0.

3.27 The Price Indexes of Materials Used in Manufacturing Industries, Australia (cat. no. 6411.0) (which contained the price indexes of copper materials) was discontinued and indexes published from the June quarter 2001 in the Producer Price Indexes, Australia (cat. no. 6427.0). The price index of copper materials was made available only in electronic form.

3.28 As a result of the PPI and ITPI 2012 Review, two subsidiary indexes; Copper input to the other electrical equipment manufacturing industry and Metallic input to the fabricated metal product manufacturing industry have been discontinued from the September quarter 2013.

CONSTRUCTION INDUSTRIES PRODUCER PRICE INDEXES

Output of the Construction industries

3.29 A price index for the output of the building industry was first published in the June quarter 2001 issue of Producer Price Indexes, Australia (cat. no. 6427.0). The index was published as the aggregate of three ANZSIC 1993 class indexes, namely, house construction (4111), residential building construction n.e.c. (4112) and non-residential building construction (4113). The aggregate index was presented with an index reference period of 1998-99=100.0. Weights for the index at the ANZSIC 1993 class level for Australia were sourced from I-O product supply table data for 1996-97. Weights at the state level were sourced from the Building Activity Construction Survey (BACS) over the five years ending 1998-99.

3.30 From September 2002, the series for 'Output of the building industry', equating to ANZSIC 1993 group 411 (building construction), was published together with index series for its three constituent ANZSIC 1993 classes, 4111 (house construction), 4112 (residential building construction n.e.c.) and 4113 (non-residential building construction). As part of this process the aggregate series for ANZSIC 1993 group 411 was revised. A new series was published for ANZSIC group 412 (non-building construction), which comprised ANZSIC class 4121 (road and bridge construction).

3.31 A review was implemented in the December quarter 2007. The new weights of the index at the ANZSIC 1993 class level for Australia were primarily sourced from I-O product supply tables for 2001-02. State level weights were sourced from the BACS over the two calendar years 2005 and 2006.

3.32 The index of output of the building industry was renamed to Output of the Construction industries and the index reference period updated to 2011-12 = 100.0.

3.33 The changes resulted in the indexes being presented according to ANZSIC 2006. Weights at the class level for Australia were sourced from the 2007-08 I-O product supply tables with 2010 and 2011 calendar year BACS data used to apportion Residential building construction into House construction (3011) and Other residential building construction (3019). The BACS data were also used to derive state level weights.


Input to the House construction industry

3.34 The price index of materials used in house building was first published in September 1970 and was presented with an index reference period of 1966-67 =100.0. The weights were sourced from estimated materials usage in 1968-69. Monthly index numbers were compiled for the period July 1966 to September 1986. A description of the index, including its composition and weighting pattern, was given in the Price Index of Materials Used in House Building, Six State Capital Cities (cat. no. 6408.0), and in Labour Report No. 55, 1970 (cat. no. 6101.0).

3.35 The index was reviewed in 1986 and a new series introduced from October 1986. This series was linked to the previous series. This series was presented with an index reference period of 1985-86 = 100.0 with weights sourced from estimated materials usage in 1985-86. A description of this series was provided in the October 1986 issue of Price Index of Materials Used in House Building, Six State Capital Cities (cat. no. 6408.0).

3.36 The index was reviewed in December 1995. It was re-referenced to 1989-90 =100.0 and was linked to the previous series.

3.37 The indexes have been compiled and released on a quarterly basis since the September quarter 1997.

3.38 The Price Indexes of Materials Used in House Building, Six State Capital Cities (cat. no. 6408.0) was discontinued and the index published in Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

3.39 In December 2005, the index was again reviewed. This review saw the structure of the index changed to reflect building material usage observed in the three years ending 2002-03. Capital city weights were updated to reflect building patterns observed in the six state capitals in 2003-04. The resulting weights were price updated to the September quarter 2005 by adjusting each by the ratio of the price in the September quarter 2005 to the average price in 2003-04.

3.40 From the September quarter 2012, this index was renamed from Materials Used in House Building to Input to the house construction industry and re-referenced to 2011-12 = 100.0.

3.41 The Input to the House construction industry price index was re-weighted in the December quarter 2013. The weights for the Input to the House construction industry price index were derived from representative housing construction activity for the average of the three years ending 2010-11. The weighting patterns for each capital city index reflects variations in the prices for the cities as applied to an Australian (6 capital cities) weighted average of house construction inputs. The updated weighting patterns were calculated using bill of quantities data for three years ending 2010-11 obtained from quantity surveyors. These quantities were price updated to 2012-13 and then benchmarked to the Building Activity, Australia (cat. no. 8752.0) total value work done for houses, by capital city.


MINING INDUSTRIES PRODUCER PRICE INDEXES

Input to the Coal mining industry

3.42 The Price Indexes of Materials Used in Coal Mining, Australia (cat. no. 6415.0) was first published in February 1989 and presented with an index reference period of 1987-88 = 100.0. The indexes were compiled for each month from July 1988.

3.43 The indexes have been compiled and released on a quarterly basis since the September quarter 1997.

3.44 In 2001 the indexes were re-weighted to reflect estimated average use of materials in coal mining over the 1999-2000 financial year and re-referenced to 1989-90 = 100.0.

3.45 The Price Indexes of Materials Used in Coal Mining, Australia (cat. no. 6415.0) were discontinued and the data published, from the June quarter 2001, in Producer Price Indexes, Australia (cat. no. 6427.0).

3.46 From the September quarter 2012, this index was renamed from Materials used in coal mining to Input to the coal mining industry and re-referenced to 2011-12 = 100.0.

3.47 Open cut mining and Underground mining have been discontinued and combined into one index for Input to the Coal mining industry as a result of the PPI and ITPI 2012 Review. The index was updated in the September quarter 2013 to ANZSIC 2006 and weights were sourced from the 2007-08 I-O tables. From the September quarter 2015 the Input to the Coal mining industry index weights were updated using data from the 2012–13 Australian National Accounts: Input–Output (I–O) Tables.


SERVICES INDUSTRIES PRODUCER PRICE INDEXES

3.48 Price indexes for the Output of service industries are a relatively new development and to date have been compiled for a selection of services industries.

3.49 Quarterly price index numbers for services industries were first published in the March quarter 2000 for the Transport (Freight) and Storage Industries (ANZSIC 1993 Division I) and the Property and Business Services Industries (ANZSIC 1993 Division L).

3.50 The indexes were first published in Producer Price Indexes for Selected Service Industries, Australia (cat. no 6423.0). The index structure and weights were sourced from the 1994-95 I-O tables, and presented with an index reference period of 1998-99 = 100.0.

3.51 The Producer Price Indexes for Selected Service Industries, Australia (cat. no 6423.0) was discontinued and the data published, from the June quarter 2001, in the Producer Price Indexes, Australia (cat. no. 6427.0).

3.52 The price indexes for the output of services industries were reviewed in 2002. From the June quarter 2002, the index structure and weights were sourced from the 1996-97 I-O tables. This review also saw significant improvements in coverage of these price indexes.

3.53 Additional service industry price indexes have been developed since September quarter 2012 as part of an ongoing program to improve service industry price measurement. The indexes were also updated in the September quarter 2012 to ANZSIC 2006 and weights were sourced from the 2007-08 I-O tables. The indexes were re-referenced to 2011-12 = 100.0. From the September quarter 2015 the additional service industry indexes' weights were updated using data from the 2012–13 Australian National Accounts: Input–Output (I–O) Tables.
STAGE OF PRODUCTION PRODUCER PRICE INDEXES

3.54 PPIs for the supply of products to the Australian economy within a stage of production framework were first published in Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0). The Stage of Production (SOP) indexes enable analysis of the pass through of price change of input products to the price change of final products. This publication commenced in July 2000 and presented price indexes compiled from September 1998. The SOP index model brings together the range of detailed price data contained in the separate industry indexes to enhance the analytical value of the data. The SOP framework is based on an economic categorisation of transactions according to their sequencing in the production chain.

3.55 The weights of the indexes were initially sourced from the 1994-95 I-O tables and presented with an index reference period of 1998-99 = 100.0.

3.56 The Stage of Production Producer Price Indexes, Australia (cat. no. 6426.0) was discontinued and the data published in Producer Price Indexes, Australia (cat. no. 6427.0) from the June quarter 2001.

3.57 The SOP indexes were reviewed in 2002 and the changes introduced from the December quarter 2002. The weights of the revised series were sourced from the 1996-97 I-O tables.

3.58 In the September quarter 2012, following the 2012 PPI and ITPI Review, the weights were updated with data sourced from the 2007-08 I-O tables. The SOP indexes were re-referenced to 2011-12 = 100.0. In addition, as of the September quarter 2012, the SOP indexes were reclassified to align with the updated version of ANZSIC (i.e. from the 1993 to the 2006 edition). Implementation of the ANZSIC 2006 classification resulted in some restructuring and/or renaming of previous ANZSIC 1993 PPI series, discontinuation of series and introduction of new series. However, while the underlying concepts have remained unchanged, the SOP stages were renamed to reflect the relationship of the stages of production:

• Stage 3 (Final) becomes Final Demand, i.e. products consumed as Final Demand, with no further processing
• Stage 2 (Intermediate) becomes Intermediate Demand, i.e. products consumed as inputs into the production of Final Demand
• Stage 1 (Preliminary) becomes Preliminary Demand, i.e. products consumed as inputs into the production of Intermediate Demand.

From the September quarter 2015 the SOP indexes weights were updated using data from the 2012–13 Australian National Accounts: Input–Output (I–O) Tables.



INTERNATIONAL TRADE PRICE INDEXES

Export Price Index

3.59 Export price measures have been published by the ABS since 1901.

3.60 The first export price index was published annually from 1901 to 1929-30 as a current weighted unit value index and then a fixed weighted index.

3.61 An index of export prices was not published again until 1937, when a new series was introduced. This series continued until 1962.

3.62 A fixed weighted index was introduced in August 1962 and presented with an index reference period of 1959-60 = 100.0. It was replaced by an interim index that was published from July 1969 until June 1979.

3.63 The next re-reference was to 1974-75 = 100.0 and was published on this basis until August 1990.

3.64 The monthly publication Export Price Index, Australia (cat. no. 6405.0) was introduced in September 1990 and index numbers were compiled from July 1989. The index was referenced to 1989-90 = 100.0.

3.65 The indexes have been compiled and released on a quarterly rather than monthly basis since the September quarter 1997.

3.66 The export price index was reviewed in 1999. The main purpose of the review was to ensure that the index satisfied key user requirements. Information Paper: Review of the Import Price Index and Export Price Index (cat. no. 6424.0) was released in November 1999 and outlined the key objectives of the review and sought user feedback. The broad outcomes of the review are outlined in an Appendix to the June quarter 2000 issue of the Export Price Index, Australia (cat. no. 6405.0). One of the results of the review was a move to an annually re-weighted chained index, whereby each September quarter the weights of the index are updated to reflect the average value of export items in the previous two financial years, due to the greater volatility associated with the value of export items.

3.67 In the June quarter 2001 Export Price Index, Australia (cat. no. 6405.0) was combined with Import Price Index, Australia (cat. no. 6414.0) into a single publication, International Trade Price Indexes, Australia (cat. no 6457.0).


Import Price Index

3.68 Import price indexes were published by the Reserve Bank of Australia (RBA) from 1928 until September 1982.

3.69 The first index of import prices produced by the ABS was introduced in May 1983. Index numbers were published in Import Price Index, Australia (cat. no. 6414.0). This index was compiled quarterly from the September quarter 1981 until the June quarter 1991 and presented with an index reference year of 1981-82 = 100.0.

3.70 A re-weighted index of import prices was introduced in September 1991 with index numbers compiled monthly from April 1991 until June 1997. This index was referenced to 1989-90 = 100.0. The source of the weights was the average value of merchandise imports landed in Australia during 1988-89 and 1989-90.

3.71 The indexes have been compiled and released on a quarterly basis since the September quarter 1997.

3.72 In 1999, a review of the index was undertaken with the findings published in Information Paper: Review of the Import Price Index and Export Price Index (cat. no. 6424.0). One of the results of the review was a move to an annually re-weighted chained index, whereby each September quarter the weights of the index are updated to reflect the average value of merchandise imports landed in Australia in the previous financial year. From the September quarter 2012, the index is referenced to 2011-12=100.0.

3.73 In the June quarter 2001 Import Price Index, Australia (cat. no. 6414.0) was combined with Export Price Index, Australia (cat. no. 6405.0) into a single publication International Trade Price Indexes, Australia (cat. no. 6457.0).

3.74 In the September quarter 2012 the ITPIs were re-referenced to 2011-12 = 100.0.