No. 3 - Department of Treasury - The Western Australian Government

Western Australian Economic Summary2006 No.3Input PricesThe strength of Western Australia’s economy has led to accelerating growthin input costs.The latest Western Australian Chamber of Commerce andIndustry/BankWest Business Expectations Survey’s index of input costs roseto a record high level for the second consecutive quarter. The increasing costof inputs has also seen investment projects increase their project costestimates. (For more information on how this has affected investment inWestern Australia see the Business Conditions chapter on page 33).National Producer Price Indexes 1 data show that, over about the last yearand a half, firms have been absorbing cost of production increases ratherthan passing them on to consumers (Figure 12). The intermediate andpreliminary goods price indexes show rising costs since September 2004 (inannual average terms) while final prices have not grown as sharply over thesame period.9%8%7%6%5%4%3%2%1%0%-1%-2%Figure 12PRODUCER PRICE INDEXESAnnual Average Growth, AustraliaSep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06Final Intermediate PreliminarySource: ABS Cat. 6427.01 The three stage of production Producer Price Indexes track price changes ascommodities flow through production processes. The construction of the Indexes issimilar to the CPI, with fixed weighted items observed and periodically reviewed. TheCPI and final goods indexes will differ. The CPI measures the actual retail price paidby households for products, while the final goods index measures the price receivedby the producer exclusive of any taxes on products and transport and trade margins.The coverage of the two indexes differs (the CPI covers both goods and serviceswhile the producer price indices cover only goods); and the indexes have differentweighting bases. While available at a national level, the producer price indices arenot available at the State level.20 Department of Treasury and Finance