COMMENTARY


STAGE OF PRODUCTION (SOP) OVERVIEW

In December quarter 2008, the final (Stage 3) index recorded an increase of 1.3%, the intermediate (Stage 2) index recorded an increase of 0.9%, whilst the preliminary (Stage 1) index recorded an increase of 0.3%. Through the year to December quarter 2008, the final (Stage 3) index increased by 6.4%, the intermediate (Stage 2) increased by 9.5% and the preliminary (Stage 1) index increased by 11.9%.

The decline in the value of the Australian dollar against all major trading currencies was a significant contributor to increases in both imported and exported commodities in the December quarter 2008.

The increase of 1.3% in the final (Stage 3) index reflects a fall of 0.5% in the price of domestically produced items, and a rise of 14.8% in the price of imported items. The domestic component decreased due to price falls in petroleum refining (-28.4%) and building construction (-0.5%). These decreases were partially offset by price rises in beverage and malt manufacturing (+3.9%), other agriculture (+4.8%) and meat and meat product manufacturing (+3.0%). The imports component increased due to price rises for industrial machinery and equipment manufacturing (+19.4%), electronic equipment manufacturing (+23.7%), other manufacturing (+27.7%), other transport equipment manufacturing (+26.5%) and clothing manufacturing (+31.0%). These increases were partially offset by price falls in petroleum refining (-34.0%). Imported commodities were impacted by exchange rate driven price increases.

The increase of 0.9% in the intermediate (Stage 2) index reflects no movement in the price of domestically produced items and a rise of 6.8% in the price of imported items. The domestic component recorded price rises for coal mining (+30.3%), iron and steel manufacturing (+9.4%), structural metal product manufacturing (+7.3%) and other agriculture (+6.4%). These increases were offset by price falls in petroleum refining (-22.7%), oil and gas extraction (-26.5%), grain, sheep, beef and dairy cattle farming (-5.8%) and basic non-ferrous metal manufacturing (-18.0%). The imports component increased due to price rises in basic chemical manufacturing (+22.3%), industrial machinery and equipment manufacturing (+17.0%), textile, clothing, footwear and leather manufacturing (+23.8%) and iron and steel manufacturing (+28.7%). These increases were partially offset by price falls in oil and gas extraction (-21.8%), petroleum refining (-20.1%), and basic non-ferrous metal manufacturing (-25.8%).

The increase of 0.3% in the preliminary (Stage 1) index reflects no movement in the price of domestically produced items and a rise of 1.7% in the price of imported items. The domestic component recorded price increases for coal mining (+30.3%), iron and steel manufacturing (+9.4%), basic chemical manufacturing (+6.0%) and structural metal product manufacturing (+7.3%). These increases were partially offset by price falls in oil and gas extraction (-26.5%), petroleum refining (-22.7%), basic non-ferrous metal manufacturing (-18.0%) and grain, sheep, beef and dairy cattle farming (-6.5%). The imports component increased due to price rises in basic chemical manufacturing (+22.3%), iron and steel manufacturing (+28.8%), industrial machinery and equipment manufacturing (+16.6%) and other mining (+102.8%). These increases were partially offset by price falls in oil and gas extraction (-21.8%), petroleum refining (-22.9%) and basic non-ferrous metal manufacturing (-25.9%).

MANUFACTURING INDUSTRIES PRODUCER PRICE INDEXES

During the December quarter 2008, the prices paid by manufacturers for material inputs decreased by 2.6%, while the prices they received for their outputs decreased by 2.3%. Through the year to December quarter 2008, prices of material inputs increased by 13.9%, while prices for their outputs increased by 6.7%.

Price decreases for products from oil and gas extraction (-25.0%) and grain, sheep and beef cattle farming (-5.4%) drove the falls in the cost of materials used in the manufacturing industries. Major contributors to these price decreases were domestic and imported crude oil and sheep and lambs. Price increases for products from iron and steel manufacturing (+35.8%) and metal ore mining (+8.8%) provided offsets to the price decreases.

The decrease in prices received for articles produced by manufacturing industries was mainly due to falls in the prices of outputs from petroleum refining (-22.0%), non-ferrous metal rolling, drawing, extruding n.e.c. (-36.7%) and basic non-ferrous metal manufacturing (-17.6%). Major contributors to these price decreases were unleaded petrol, diesel, copper and alloy products and nickel. These decreases were partly offset by increases in the prices received for outputs from fertiliser manufacturing (+25.1%) and meat processing (+4.9%).

CONSTRUCTION INDUSTRIES PRODUCER PRICE INDEXES

The price index for materials used in house building increased by 1.3% in the December quarter 2008. This follows consecutive price increases of 2.6% in the September quarter 2008, 1.5% in the June quarter 2008 and 1.3% in the March quarter 2008. The most significant increases were price rises for steel products (+10.1%), other metal products (+1.6%) and other materials (+1.5%).

Sydney (+1.9%) contributed the most to the overall weighted average of six capital cities quarterly movement, followed by Melbourne (+0.9%) and Brisbane (+1.5%). The largest percentage increase was for Adelaide (+2.3%). Increases were recorded for all the state capitals.

Through the year to December quarter 2008, the materials used in house building price index rose by 6.9%. This rise was mainly attributed to increases in prices paid for steel products (+50.3%), other metal products (+6.9%) and timber, board and joinery (+4.7%).

The price index for the output of the general construction industry decreased by 0.3% in the December quarter 2008 and increased by 5.1% through the year. The quarterly decrease was mainly influenced by a price fall in Victoria (-2.7%), which was partially offset by small increases in all the other states.

Non-residential building construction (-1.2%) contributed the most to the overall decrease in the December quarter 2008 general construction movement, followed by residential building construction n.e.c. (-0.4%). These decreases were partially offset by increases in house construction (+0.3%) and road and bridge construction (+1.2%).

SERVICE INDUSTRIES PRODUCER PRICE INDEXES

The property and business services industries price index increased by 0.5% in the December quarter 2008, and by 5.0% through the year to December quarter 2008.

The property services index increased by 0.4% in the December quarter 2008, and by 6.5% through the year to December quarter 2008. The main contributor to the increase was commercial property operators and developers (+0.7%). The business services index increased by 0.6% in the December quarter 2008 quarter and by 4.0% through the year to December quarter 2008. The main contributor to the increase was accounting services (+3.1%).

The transport (freight) and storage industries index increased by 2.6% in the December quarter 2008, and by 9.8% through the year to December quarter 2008. The main contributors to the increase were international sea transport (+20.5%), road freight transport (+1.3%), rail transport (+4.3%) and grain storage (+10.6%).