Chapter 13 - The system of price statistics in the ABS

13.1 The objective of this final chapter is to improve users' knowledge and understanding of the array of price statistics produced by the ABS, and to facilitate the selection of the most appropriate measures for particular applications, such as the analysis of inflation, indexation, and business contract adjustment.

13.2 The Wage Price Index (WPI) is part of a broader system of price statistics. There are a range of other price indexes that apply to different sectors of the economy. This chapter describes the other price measures produced by the ABS; both the direct measures of price change, and derived measures.

13.3 There are seven principle price indexes in the system of economic statistics.

(i) Wage Price Index
(ii) Consumer Price Index
(iii) Selected Living Cost Indexes
(iv) Producer Price Indexes
(v) Import Price Index
(vi) Export Price Index
(vii) House Price Index.

13.4 These are well known and closely watched indicators of macro-economic performance and the purchasing power of money. They are used as deflators in providing summary measures of the volume of goods and services produced and consumed. Consequently, these indexes are not only important tools in the design and conduct of the monetary and fiscal policy of the government, but also are of great utility in economic decisions throughout the private sector. These indexes provide an integrated and consistent view of price developments in production, consumption, and international transactions in goods and services.

13.5 All the principle price indexes introduced above are direct measures of price change; that is, they are obtained through collecting and directly using price data. Each of the other ABS indexes is described in the following paragraphs.

13.6 The CPI measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by Australian metropolitan households.

13.7 The CPI is published quarterly in Consumer Price Index, Australia (cat. no. 6401.0).

13.8 Detailed information about the CPI can be found in Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0).

13.9 The ABS produces a set of quarterly living cost indexes to assess the effect of changes in prices on the out-of-pocket living expenses experienced by selected household types. The households are categorised according to their principal source of household income, which is derived from the latest Household Expenditure Survey (HES).

13.10 The household types in the scope of these indexes account for just over 90% of Australian households. The household types that have been identified as being appropriate for the construction of these indexes are:

• employee households - those households whose principal source of income is from wages and salaries;
• age pensioner households - those households whose principal source of income is the age pension or veterans affairs pension;
• other government transfer recipient households - those households whose principal source of income is a government pension or benefit other than the age pension or veterans affairs pension;
• self-funded retiree households - those households whose principal source of income is superannuation or property income and where the HES defined reference person is ‘retired’ (not in the labour force and over 55 years of age); and
• pensioner and beneficiary households - those households whose principal source of income is a government pension or benefit, the age pension or veterans affairs pension.

13.11 Results for these households are available in the publication Selected Living Cost Indexes, Australia (cat. no. 6467.0).

13.12 PPIs measure the changes in the prices of goods and services as they either leave the place of production or enter the production process. PPIs can be constructed as either an output measure or an input measure. Input PPIs measure the rate of change in the prices of goods and services purchased by the producer. Output PPIs measure the rate of change in the prices of goods and services as they leave the producer.

13.13 The PPIs are published quarterly in Producer Prices Indexes, Australia (cat. no. 6427.0).

13.14 Detailed information about the PPIs can be found in Producer and International Trade Price Indexes: Concepts, Sources and Methods, 2006 (cat. no. 6429.0) and Information Paper: Outcome of the Review of the Producer and International Trade Price Indexes, 2012 (cat. no. 6427.0.55.004).

13.15 The IPI measures the changes in the prices paid for imports of merchandise that are landed in Australia each quarter.

13.16 The EPI measures the changes in the prices received for exports of merchandise that are shipped from Australia each quarter.

13.17 The IPI and EPI are published quarterly in International Trade Price Indexes, Australia (cat. no. 6457.0).

13.18 The HPI measures changes in house prices in each of the eight capital cities. The information is presented in the form of price indexes constructed separately for established houses and for project homes. The price index for established houses covers transactions in detached residential dwellings on their own block of land regardless of age. Project homes are dwellings available for construction on an existing block of land, therefore price changes relate only to the price of the dwelling.

13.19 The valuation basis of the HPI is purchasers' prices; that is, the price includes non-deductible taxes (for example GST in the case of project homes). The HPI is published quarterly in House Price Indexes, Eight Capital Cities (cat. no. 6416.0)

13.20 Detailed information about the HPI can be found in House Price Indexes: Concepts, Sources and Methods, Australia, 2009 (cat. no. 6464.0).

13.21 The Australian System of National Accounts is a systematic framework of statistics providing a wide range of information about the economy and its components. Within the National Accounts framework are derived measures of price change, which include implicit price deflators (IPDs) and chain price indexes.

13.22 IPDs are obtained by dividing a current price value by the chain volume measure expressed in dollar terms. IPDs are derived measures (hence the term implicit) and are not normally the direct measures of price change by which current price estimates are converted to volume measures. They reflect both changes in the prices between the two periods and changes in the composition of the aggregate between those periods.

13.23 As the composition of an aggregate often changes from period to period, IPDs do not compare the price of a constant basket of goods and services between any two periods (except in comparing the index reference period with any other period). IPDs calculated from quarterly aggregates may be particularly affected by changes in the physical composition of those aggregates. As much of the quarter to quarter change in the physical composition is of a seasonal nature, IPDs derived from seasonally adjusted data are normally more reliable measures of price change than those calculated from unadjusted data. Even so, seasonally adjusting the series may not completely eliminate the effect of seasonal changes on the derived IPDs.

13.24 IPDs are available for gross domestic product; export of goods and services; imports of goods and services; and domestic final demand, and its four major components. They are published quarterly as part of Australian National Accounts; National Income, Expenditure and Product (cat. no. 5206.0), and Balance of Payments and International Investment Position, Australia (cat. no. 5302.0).

13.25 In contrast, the chain price indexes in the Australian National Accounts provide estimates of pure price changes. They are annually re-weighted, Laspeyres chain price indexes. These indexes encompass the whole of the economy.

13.26 An annually chained price index weights price changes together using the previous year's weights for each quarter of the current year. The chain price indexes are calculated from the deflators used to derive the volume estimates, weighted together in the same way and at the same level of detail as the chain volume estimates. In those cases where quantity revaluation is used to derive volume estimates, the implicit price deflator at a detailed level of disaggregation is used in constructing the chain price indexes to minimise the effect of any compositional change.

13.27 Detailed information about the Australia System of National Accounts can be found in Australian National Accounts: Concepts, Sources and Methods, Edition 1 2012 (cat. no. 5216.0).

13.28 As described in this chapter, there are a wide range of price indexes produced by the ABS which are used for indexation, research and analysis. Although the ABS acknowledges that the various price indexes it publishes are used in indexation clauses and wage negotiation, it neither endorses nor discourages such use. The ABS has prepared information for users that sets out a range of issues that should be taken into account by parties considering an indexation clause in a contract using an ABS published price index. This paper, Use of Price Indexes in Contracts, is available on the ABS website.

13.29 The index or indexes selected will affect the price change recorded and should be chosen carefully to best represent the set of items. A description of what each price index measures is available on the ABS website which will assist in the decision of which index to use. For more information about what data is available, please contact the ABS National Information and Referral Service on 1300 135 070.