QUALITY DECLARATION – SUMMARY

INSTITUTIONAL ENVIRONMENT

The ABS is independent of government, with the Australian Bureau of Statistics Act 1975 giving the Statistician the power to control the operations of the ABS. For further information on the institutional environment of the Australian Bureau of Statistics (ABS), including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.


RELEVANCE

The Australian Producer Price Indexes (PPI) measure the changes in the prices of goods and services as they either leave the place of production or as they enter the production process. Thus, producer price indexes can be constructed as either output measures or input measures. An input PPI measures the rate of change in the prices of goods and services purchased as inputs by the producer. An output PPI measures the rate of change in the prices of products sold (outputs) as they leave the producer.

The ABS compiles a suite of quarterly input and output price indexes for selected industries of the Australian economy. As well as indexes relating to narrowly defined components of the economy (such as the Input to the House construction industry), broad based indexes are produced that cover significant parts of the economy. In particular, the "Stage of Production" price indexes cover the measured economy for each of the three stages of production (preliminary, intermediate and final demand). The following indexes are the major PPIs released by the ABS:

• Stage of Production (SOP) Producer Price Indexes, presented by stage of production, industry of origin and destination within the economy
• Input to the Coal mining industry
• Input to the Manufacturing industries
• Output of the Manufacturing industries
• Input to the House construction industry
• Output of the Construction industries
• Output of the Retail Trade industry
• Output of the Accommodation and food services industries
• Output of the Transport, postal and warehousing industries
• Output of the Information media and telecommunications industries
• Output of the Rental, hiring and real estate services industries
• Output of the Professional, scientific and technical services industries
• Output of the Administrative and support services industries
• Output of the Public administration and safety industries
• Output of the Education and training industries
• Output of the Other services industries.

The Producer Price Indexes are used by the government and private sector for a variety of purposes:

• as deflators in the Australian National Accounts;
• as a short–term indicator of inflationary trends;
• for indexation in legal contracts in both the public and private sectors;
• to inform business and government policy decisions; and
• by international organisations such as the OECD and the IMF for economic monitoring and comparison.

TIMELINESS

Producer Price Indexes are released each quarter (three months ending March, June, September and December). The data are released no later than 33 days after the end of the reference quarter.


ACCURACY

The Producer Price Indexes measure price changes, over time, in selected industries of the Australian economy. Transactions for each of these industries may cover purchase and sales of thousands of different products at a wide variety of prices. The sheer volume and complexity of these transactions mean that a non–probability sampling method is more practicable and efficient than probability sampling methods. A non–probability sampling method involves choosing producers based on the relative importance of the products they sell or buy, who they sell to or buy from and the nature of their pricing policies.

There are two principle sources of error in surveys, sampling error and non–sampling error. Non–sampling error arises from inaccuracies in collecting, recording and processing the data. Every effort has been made to reduce non–sampling error in the PPI by:

• careful design of questionnaires, processing systems and by providing instructions to businesses on how to price a relevant sample of producer transactions;
• detailed checking of completed survey forms; and
• instituting a range of procedures to ensure that transactions are priced to constant quality and quantity.

Sampling error occurs when a sample or subset of the population is surveyed rather than the entire population. One measure of the likely difference resulting from not including all of the population in the survey is given by the standard error. While the selection of producer transactions are based on sampling techniques, standard errors are not available for the PPI. While it is reasonably straightforward to calculate sampling errors for a level estimate, it is not so straightforward to determine standard errors for the PPI which uses both sampling and index methodologies.

The main sources of ongoing price data are samples of businesses. The samples can relate to either buyers or sellers, or a combination of both. The choice is influenced by the pricing point of the index (output or input) and practical considerations such as the relative degree of concentration of buyers, and of sellers, and the implications for sample sizes and costs. Prices are collected from approximately 2,900 businesses for approximately 1,700 products. Around 25,000 individual prices are collected each quarter. Prices for most items are collected once a quarter, with the collection spread across that period. As far as possible the prices used in the indexes are actual transaction prices.


COHERENCE

Producer Price Indexes are a key economic indicator in most countries, including Australia. The first price index of this kind compiled by the ABS (known at the time as the Commonwealth Bureau of Census and Statistics) was the Melbourne Wholesale Price Index, which was introduced in 1912 with index numbers available from 1861 and ceased in 1961. Prices were extracted from newspapers and trade publications. The next index published was the Wholesale Price Index, which was introduced in 1939, with index numbers available from 1928, and ceased in 1970. With a few exceptions, prices were obtained from Melbourne sources.

In the 1970s, the ABS introduced a number of monthly price indexes about the input and/or output of the manufacturing industry (cat. nos. 6412.0 and 6411.0), mining industry (cat. no. 6415.0) and building industry (cat. no. 6408.0). The frequency of these indexes changed from being monthly to quarterly in the September quarter 1997. The range of price indexes published by the ABS expanded to include selected services industry (cat. no. 6423.0) in 2000 and to include the output of the general construction industry (cat. no. 6427.0) in 2002. Also in 2000, the ABS introduced an overarching, economy wide set of indexes in a "stage of production" (SOP) framework (cat. no. 6426.0).

Starting from June quarter 2001, the publications of these individual indexes were combined in the current Producer Price Indexes, Australia (cat. no. 6427.0) publication.

Generally, as most of the weighting patterns of the producer price indexes are derived from National Accounts Input–Output (I–O) data, these indexes are reviewed when more recent I–O data as well as other ABS data and industry information becomes available. To maintain continuous index series, the updated indexes are linked to the previous index series. The PPI are chained Lowe indexes. Item weights are currently based on the 2012–13 I–O values, using the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).

Index numbers are released as final figures at the time they are first published. Revisions will only occur in exceptional circumstances.


INTERPRETABILITY

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

• movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers);
• movements between corresponding quarters of consecutive years; and
• movements between consecutive quarters.

Care should be exercised when interpreting quarter–to–quarter movements in the indexes as short–term movements do not necessarily indicate changes in trends.

The Producer Price Indexes, Australia (cat. no. 6427.0) contains Explanatory Notes that provide information about the structure, weights, data sources and other technical aspects of the series. Further information is available in Producer and International Trade Price Indexes; Concepts, Sources and Methods (cat. no. 6429.0).


ACCESSIBILITY

Detailed information, including a range of time series spreadsheets, can be found in the "Downloads" tab of this webpage. For links to data and publications relating to the producer price indexes and other price indexes, please see Price Indexes and Inflation.