Sources and methods - Annual

The Economic Activity Survey (EAS) is the source for the private sector as well as public non-financial corporations. EAS provides the following data:

• raw materials;
• work-in-progress;
• and finished goods.

Government Finance Statistics is the source for the general government sector changes in inventories. It provides changes in inventories in total which is allocated to industry in proportion to government output.

Changes in inventories of raw materials are classified to the IOPC level by applying the proportion of the inventory products of intermediate use from the input and output tables to the total changes in inventories of raw materials.

Changes in inventories of work-in-progress and finished goods for all industries are classified to the IOPC level by applying the proportion of the inventory products of supply from the input and output tables to the total changes in inventories of work-in-progress and finished goods. The IOPC level data for all changes in inventories components are aggregated to the Supply-Use Product Classification (SUPC) level.

Supply and Use balancing process

The inventories’ estimates at the SUPC level, are inserted into the Use table which is balanced with the Supply table at the product level using the product flow method. Therefore, adjustments are likely to be applied to the initial inventories estimate to obtain a balance between supply and use.

The adjustments are determined by confronting the supply and use data with industry association data, annual reports of significant units within the industry, as well as other relevant ABS survey results.

For more information on the product flow method refer to Chapter 7.

The most successful means of deriving chain volume changes in inventories has been found to be differencing chained estimates of the levels. The steps involved are as follows:

1. Re-value quarterly book value levels to levels valued in the prices of the previous year;
2. Sum to the required level of aggregation;
3. Calculate quarter to quarter indexes which show the volume growth in levels between the present and previous quarter;
4. Compound these indexes to form a chained index;
5. Reference the chained index to the June quarter book value level of the reference year to give a chain volume series of levels; and
6. Difference the resultant values to derive the chain volume estimates of changes in inventories.

The price indexes that are used to re-value book value levels of inventories are formed by weighting together component price indexes from ABS publications: Consumer Price Index, Australia; Producer Price Indexes, Australia; and International Trade Price Indexes, Australia. The regimen and weights for these price and wage price indexes are derived using data from the various censuses and surveys conducted by the ABS.

Chain volume estimates of changes in private non-farm inventories are published in the following detail in the national accounts:

• mining;
• manufacturing;
• wholesale trade;
• retail trade; and
• other non-farm industries.

It is noteworthy that, unlike other national accounts aggregates, quarterly chaining and annual chaining of volumes of changes in inventories produce identical annual chain volume estimates of changes in inventories. This is because chain volume estimates of changes in inventories are derived by differencing the chain volume estimates of the levels of inventories which relate to the end of quarterly and annual periods and coincide for the June quarter.

Changes in farm inventories include changes in:
 

• inventories held on farms (including wool, wheat, barley, oats, maize, sorghum, hay, fertiliser, apples and pears, and livestock);
• produce (e.g. vegetables) held in cold store where ownership remains with the primary producer.

Annual changes in the book value of inventories of wool are estimated as the difference between inventory levels based on available information obtained from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Australian Wool Exchange (AWEX), and various ABS agricultural statistics. Annual changes in the book value of inventories of apples and pears are estimated as the difference between inventory levels, which was modelled from data provided by the Tasmanian Department of Primary Industries, Parks, Water and Environment.

Annual changes in the book value of inventories of grain crops held on farms are derived as the difference between the value of production and disposals; that is, exports and domestic usage of the various commodities. Annual values of gross value of farm production of crops are obtained from the ABS publication, Value of Agricultural Commodities Produced, Australia and ABARES publication, Agricultural Commodities. Disposals are estimated from export statistics, estimates of seed purchased or retained on farms for use as seed or fodder, and materials used in manufacturing statistics, which are modelled from data obtained from the ABS publications, International Trade in Goods and Services, Australia, Value of Agricultural Commodities Produced, Australia and the Quarterly Business Indicators Survey. Although exports data are available quarterly from ABS trade statistics, various indicators must be used to derive quarterly data relating to production of grain crops. For example, annual data on gross value of production and on seed and fodder use are allocated to quarters according to fixed proportions based on harvest and planting seasons and assumed seasonal requirements for fodder.

Animals reared for slaughter are regarded as work-in-progress. The estimates are derived from numbers of animals collected annually by the ABS, and prices from the Australian Bureau of Agricultural and Resource Economics and Sciences. Animals reared for breeding purposes or recurrent production (such as dairy cattle and sheep reared for wool production) are regarded as gross fixed capital formation.

The techniques used to calculate chain volume estimates of changes in farm inventories are only slightly different to those shown above for private non-farm inventories. The difference is that for many of the detailed components of the former it is difficult to obtain true book value levels of inventories. Therefore, constant price estimates of changes in inventories that preceded the introduction of chain volume estimates are used in the calculations.

The steps followed are:

1. Derive constant price levels of inventories for each component by accumulating the constant price changes over time and add these to a base level (i.e. the level at a particular time for which there is an estimate). The base level is often only an approximation of the true level and is sometimes only derived as a figure which will ensure that subsequent levels remain positive. These constant price levels are then converted to levels valued in the prices of the previous year;
2. Sum to the required level of aggregation;
3. Calculate quarter to quarter indexes which show the volume growth in levels between the present and previous quarter;
4. Compound these indexes to form a chained index;
5. Reference the chained index to the June quarter book value level of the reference year to give a chain volume series of levels; and
6. Difference the resultant values to derive the chain volume estimates of changes in inventories.

For farm commodities, the price indexes used to convert constant price levels into levels valued in the prices of the previous year are calculated using production unit values.

Changes in public authorities’ inventories include estimates for general government, public non-financial corporations and public financial corporations. Recorded inventories include demonetised gold transactions (gold sales and gold loans) by the Reserve Bank of Australia and the construction of military equipment for export. Annual estimates of changes in the current price value of other public authorities’ inventories are derived from information in the annual ABS Government Finance Statistics. They are derived from a detailed analysis of annual reports and Auditors-General Reports, together with Commonwealth and State government budget papers and other financial statements.

The techniques used to calculate chain volume estimates of changes in public authorities’ inventories are only slightly different to those shown above for private non-farm inventories. The difference is that for many of the detailed components of the former it is difficult to obtain true book value levels. Use is therefore made of the constant price estimates of changes in inventories that preceded the introduction of chain volume estimates and which are still calculated.

The steps followed are:

1. Derive constant price levels of inventories for each component by accumulating the constant price changes over time and add these to a base level (i.e. the level at a particular time for which there is an estimate). The base level is often only an approximation of the true level and is sometimes only derived as a figure which will ensure that subsequent levels remain positive. These constant price levels are then converted to levels valued in the prices of the previous year;
2. Sum to the required level of aggregation;
3. Calculate quarter to quarter indexes which show the volume growth in levels between the present and previous quarter;
4. Compound these indexes to form a chained index;
5. Reference the chained index to the June quarter book value level of the reference year to give a chain volume series of levels; and
6. Difference the resultant values to derive the chain volume estimates of changes in inventories.

For the other public authorities’ inventories component, a price index is constructed in a similar way to that described above for private non-farm inventories.