Technical Note
Brief Explanation of Producer Price Indexes
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS)
is a family of indexes that measure the average change over time in the
prices received by domestic producers of goods and services. PPIs measure
price change from the perspective of the seller. This contrasts with other
measures, such as the Consumer Price Index (CPI). CPIs measure price
change from the purchaser's perspective. Sellers' and purchasers' prices
can differ due to government subsidies, sales and excise taxes, and
distribution costs.
More than 8,000 PPIs for individual products and groups of products
are released each month. PPIs are available for the products of virtually
every industry in the mining and manufacturing sectors of the U.S. economy.
New PPIs are gradually being introduced for the products of industries in
the construction, trade, finance, and services sectors of the economy.
More than 100,000 price quotations per month are organized into three
sets of PPIs: (1) Stage-of-processing indexes, (2) commodity indexes, and
(3) indexes for the net output of industries and their products. The stage-
of-processing structure organizes products by class of buyer and degree of
fabrication. The commodity structure organizes products by similarity of
end use or material composition. The entire output of various industries
is sampled to derive price indexes for the net output of industries and
their products.
Stage-of-Processing Indexes
Within the stage-of-processing system, finished goods are commodities
that will not undergo further processing and are ready for sale to the
final-demand user, either an individual consumer or business firm.
Consumer foods include unprocessed foods such as eggs and fresh vegetables,
as well as processed foods such as bakery products and meats. Other
finished consumer goods include durable goods such as automobiles,
household furniture, and appliances, as well as nondurable goods such as
apparel and home heating oil. Capital equipment includes durable goods
such as heavy motor trucks, tractors, and machine tools.
The stage-of-processing category for intermediate materials, supplies,
and components consists partly of commodities that have been processed but
require further processing. Examples of such semifinished goods include
flour, cotton yarn, steel mill products, and lumber. The intermediate
goods category also encompasses nondurable, physically complete items
purchased by business firms as inputs for their operations. Examples
include diesel fuel, belts and belting, paper boxes, and fertilizers.
Crude materials for further processing are products entering the
market for the first time that have not been manufactured or fabricated and
that are not sold directly to consumers. Crude foodstuffs and feedstuffs
include items such as grains and livestock. Examples of crude nonfood
materials include raw cotton, crude petroleum, coal, hides and skins, and
iron and steel scrap.
Commodity Indexes
The commodity classification structure of the PPI organizes products
by similarity of end use or material composition, disregarding industry of
origin. Fifteen major commodity groupings (two-digit commodity codes) make
up the All Commodities Index. Each major commodity grouping includes (in
descending order of aggregation) subgroups (three-digit codes), product
classes (four-digit codes), subproduct classes (six-digit codes), item
groupings (seven-digit codes) and individual items (eight-digit codes).
Industry Net-Output Price Indexes
PPIs for the net output of industries and their products are grouped
according to the North American Industry Classification System (NAICS).
Prior to the release of January 2004, industry-based PPIs were published
according to the Standard Industrial Classification (SIC) system. Industry
price indexes are compatible with other economic time series organized by
industry, such as data on employment, wages, and productivity. Table 5 of
the PPI Detailed Report includes data for NAICS industries and industry
groups (3-, 4-, 5-, and 6-digit codes); Census product classes (7- and 8-
digit codes), products (9-digit codes), and more detailed subproducts (11-
digit codes); and, for some industries, indexes for other sources of
revenue.
Indexes may represent one of three kinds of product categories. Every
industry has primary product indexes to show changes in prices received by
establishments classified in the industry for products made primarily, but
not necessarily exclusively, by that industry. The industry classification
of an establishment is determined by which products make up a plurality of
its total shipment value. In addition, most industries have secondary
product indexes that show changes in prices received by establishments
classified in the industry for products chiefly made in some other
industry. Finally, some industries have miscellaneous receipts indexes to
show price changes in other sources of revenue received by establishments
within the industry that are not derived from sales of their products-for
example, resales of purchased materials, or revenues from parking lots
owned by a manufacturing plant.
Data Collection
PPIs are based on selling prices reported by establishments of all
sizes selected by probability sampling, with the probability of selection
proportionate to size. Individual items and transaction terms from these
firms also are chosen by probability proportionate to size. BLS strongly
encourages cooperating companies to supply actual transaction prices at the
time of shipment to minimize the use of list prices. Prices submitted by
survey respondents are effective on the Tuesday of the week containing the
13th day of the month. This survey is conducted primarily through the
mail.
Price data are provided on a voluntary and confidential basis; only
sworn BLS employees are allowed access to individual company price reports.
BLS publishes price indexes instead of actual prices. All PPIs are subject
to revision 4 months after original publication to reflect the availability
of late reports and corrections by respondents.
BLS periodically updates the PPI sample of survey respondents to
better reflect current conditions when the structure, membership,
technology, or product mix of an industry shifts significantly and to
spread reporting burden among smaller firms. Results of these resampling
efforts are incorporated into the PPI with the release of data for January
and July.
As part of an ongoing effort to expand coverage to sectors of the
economy other than mining and manufacturing, an increasing number of
service sector industries have been introduced into the PPI. The following
list of recently introduced industries includes the month and year in which
an article describing the industry's content appeared in the PPI Detailed
Report.
PPI
Detailed
Report
Title Code Issue
SIC
Wireless telecommunications...................................4812 July 1999
Telephone communications, except radio telephone..............4813 July 1995
Television broadcasting.......................................4833 July 2002
Grocery stores................................................5411 July 2000
Meat and fish (seafood) markets...............................5421 July 2000
Fruit and vegetable markets...................................5431 July 2000
Candy, nut, and confectionery stores..........................5441 July 2000
Retail bakeries...............................................5461 July 2000
Miscellaneous food stores.....................................5499 July 2000
New car dealers...............................................5511 July 2000
Gasoline service stations.....................................5541 January 2002
Boat dealers..................................................5551 January 2002
Recreational vehicle dealers..................................5561 January 2002
Miscellaneous retail..........................................59 January 2001
Security brokers, dealers, and investment bankers.............6211 January 2001
Investment advice.............................................6282 January 2003
Life insurance carriers.......................................6311 January 1999
Property and casualty insurance...............................6331 July 1998
Insurance agencies and brokerages.............................6412 January 2003
Operators and lessors of nonresidential buildings.............6512 January 1996
Real estate agents and managers...............................6531 January 1996
Prepackaged software..........................................7372 January 1998
Data processing services......................................7374 January 2002
Home health care services.....................................8082 January 1997
Legal services................................................8111 January 1997
Engineering design, analysis, and consulting services.........8711 January 1997
Architectural design, analysis, and consulting services.......8712 January 1997
Premiums for property and casualty insurance..................9331 July 1998
NAICS
New industrial building construction..........................236211 January 2008
New warehouse building construction...........................236221 July 2005
New school construction.......................................236222 July 2006
New office construction.......................................236223 January 2007
Concrete contractors, nonresidential building work............23811X July 2008
Roofing contractors, nonresidential building work.............23816X July 2008
Electrical contractors, nonresidential building work..........23821X July 2008
Plumbing / HVAC contractors, nonresidential building work.....23822X July 2008
Merchant wholesalers, durable goods...........................423 July 2005
Merchant wholesalers, nondurable goods........................424 July 2005
Wholesale trade agents and brokers............................425120 July 2005
Furniture and home furnishings stores.........................442 January 2004
Electronics and appliance stores..............................443 January 2004
Building material and garden equipment and supplies dealers..444 January 2004
Clothing and clothing accessories stores......................448 January 2004
Sporting goods, hobby, book, and music stores.................451 January 2004
General merchandise stores....................................452 January 2004
Miscellaneous store retailers.................................453 January 2004
Internet service providers....................................518111 July 2005
Web search portals............................................518112 July 2005
Commercial banking............................................522110 January 2005
Savings institutions..........................................522120 January 2005
Direct health and medical insurance carriers..................524114 July 2004
Construction, mining, and forestry machinery and equipment
rental and leasing............................................532412 January 2005
Management consulting services................................541610 January 2007
Security guards and patrol services...........................561612 July 2005
Computer training.............................................611420 July 2007
Blood and organ banks.........................................621991 January 2007
Amusement and theme parks.....................................713110 July 2006
Golf courses and country clubs................................713910 July 2006
Fitness and recreational sports centers.......................713940 July 2005
Commercial machinery repair and maintenance...................811310 July 2007
Weights
Weights for most traditional commodity groupings of the PPI, as well
as weights for commodity-based aggregate indexes calculated using traditional
commodity groupings, such as stage-of-processing indexes, currently reflect
2002 values of shipments as reported in the Census of Manufactures and
other sources. From January 2002 through December 2006, PPI weights were
derived from 1997 shipment values. Industry indexes now are calculated
with 2002 weights and 1997 net output ratios. This periodic update of
the value weights used to calculate the PPI is done to more accurately
reflect changes in production and marketing patterns in the economy. Net
output values of shipments are used as weights for industry indexes. Net
output values refer to the value of shipments from establishments within
the industry to buyers outside the industry. However, weights for
commodity price indexes are based on gross shipment values, including
values of shipments between establishments within the same industry. As a
result, broad commodity grouping indexes, such as the PPI for All
Commodities, are affected by the multiple counting of price change at
successive stages of processing, which can lead to exaggerated or
misleading signals about inflation. Stage-of-processing indexes partially
correct for this defect, but industry indexes consistently correct for this
at all levels of aggregation. Therefore, industry and stage-of-processing
indexes are more appropriate than broad commodity groupings for economic
analysis of general price trends.
Price Index Reference Base
Effective with publication of January 1988 data, many important PPI
series (including stage-of-processing groupings and most commodity groups
and individual items) were placed on a new reference base, 1982 = 100.
From 1971 through 1987, the standard reference base for most PPI series was
1967 = 100. Except for rounding differences, the shift to the new
reference base did not alter any previously published percent changes for
affected PPI series. (See "Calculating Index Changes," below.) The 1982
reference base is not used for commodity indexes with a base later than
December 1981 or for industry net output indexes and their products.
For further information on the underlying concepts and methodology of
the Producer Price Index, see chapter 14, "Producer Prices," in BLS
Handbook of Methods (April 1997), Bulletin 2490. This document can be
downloaded from the BLS Web site at (www.bls.gov/opub/hom/homch14_itc.htm).
Reprints are available on request.
Calculating Index Changes
Each PPI measures price changes from a reference period that equals
100.0. An increase of 5.5 percent from the reference period in the
Finished Goods Price Index, for example, is shown as 105.5. This change
also can be expressed in dollars, as follows: prices received by domestic
producers of a sample of finished goods have risen from $100 in 1982 to
$105.50. Likewise, a current index of 90.0 would indicate that prices
received by producers of finished goods are 10 percent lower than they were
in 1982.
Movements of price indexes from one month to another are usually
expressed as percent changes, rather than as changes in index points.
Index point changes are affected by the level of the index in relation to
its base period, whereas percent changes are not. The following example
shows the computation of index point and percent changes.
Index point change
Finished Goods Price Index 107.5
Less previous index 104.0
Equals index point change 3.5
Index percent change
Index point change 3.5
Divided by the previous index 104.0
Equals 0.034
Result multiplied by 100 0.034 x 100
Equals percent change 3.4
Seasonally Adjusted and Unadjusted Data
Because price data are used for different purposes by different
groups, BLS publishes seasonally adjusted and unadjusted changes each
month. Seasonally adjusted data are preferred for analyzing general price
trends in the economy because these data eliminate the effect of changes
that normally occur at about the same time, and in about the same
magnitude, every year-such as price movements resulting from normal weather
patterns, regular production and marketing cycles, model changeovers,
seasonal discounts, and holidays. For these reasons, seasonally adjusted
data more clearly reveal underlying cyclical trends. Unadjusted data are
of primary interest to users who need information that can be related to
actual dollar values of transactions. Individuals requiring this
information include marketing specialists, purchasing agents, budget and
cost analysts, contract specialists, and commodity traders. It is the
unadjusted data that are generally cited when escalating long-term
contracts such as purchasing agreements or real estate leases. For more
information, see Escalation and Producer Price Indexes: A Guide for
Contracting Parties, BLS Report 807, September 1991, on the Web at
(www.bls.gov/ppi/ppiescalation.htm). Reprints are available on request.
In 1998, the PPI implemented the X-12-ARIMA Seasonal Adjustment
Method; prior to that year, the PPI employed the X-11 method. Each year,
the seasonal status of most commodity indexes is reevaluated to reflect
more recent price behavior. Industry net output indexes are not seasonally
adjusted. For time series that exhibit seasonal pricing patterns, new
seasonal factors are estimated and applied to the unadjusted data for the
previous 5 years. These updated seasonally adjusted indexes replace the
most recent 5 years of seasonal data.
Seasonal factors may be applied to series using either a direct or an
aggregative method. Generally, commodity indexes are seasonally adjusted
using direct seasonal adjustment, which produces a more complete
elimination of seasonal movements than does the aggregative method.
However, the direct seasonal adjustment process may not yield figures that
possess additive consistency. Thus, a seasonally adjusted index for a
broad category that is directly adjusted may not be logically consistent
with all seasonally adjusted indexes for its components. Seasonal
movements for stage-of-processing indexes are derived indirectly through an
aggregative method that combines movements of a wide variety of subproduct
class (six-digit) series.
Seasonally adjusted indexes can become problematic when previously
stable and predictable price patterns abruptly change. If the new pattern
persists, the seasonal adjustment method will eventually reflect it
adequately; if the pattern keeps shifting, however, seasonally adjusted
data will become chronically troublesome. This problem occurs relatively
infrequently for farm and food-related products, but has more often
affected manufactured products such as automobiles and steel.
Since January 1988, the PPI has used Intervention Analysis Seasonal
Adjustment methods to enhance the calculation of seasonal factors. With
this technique, outlier values that may distort the seasonal pattern are
removed from the data prior to applying the standard seasonal factor
estimation procedure. For example, a possible economic cause for large
price movements for petroleum-based products might have been the Persian
Gulf War. In this case, intervention techniques allowed for better
estimates of seasonally adjusted data. On the whole, very few series have
required intervention. Out of nearly 800 seasonally adjusted series, only
16 were subject to intervention in 2008.
For more information relating to seasonal adjustment methods, see (1)
"Appendix A: Seasonal Adjustment Methodology at BLS," in the BLS Handbook
of Methods (April 1997), Bulletin 2490 and (2) "Summary of Changes to the
PPI's Seasonal Adjustment Methodology" in the January 1995 issue of
Producer Price Indexes.
Producer Price Index Data on the Internet
In 1995, the BLS began posting PPI series, news releases, and
technical information to both a World Wide Web (WWW) site and a file
transfer protocol (FTP) site. During the years following the introduction
of PPI Internet services, use of these sites eclipsed more traditional
methods of data dissemination, such as subscriptions to the PPI Detailed
Report. There were more than 2.1 million instances of PPI series being
downloaded from the Internet during the 12 months ended December 31, 2007.
Retrieving PPI data from the PPI Web site
PPI data can be obtained from the WWW address (www.bls.gov/ppi).
Clicking on the "PPI Databases" link reveals the following methods of data
retrieval:
Top picks is a form-based application for both industry Data and
Commodity Data that allows the user to quickly obtain PPI time series data
by selecting the most commonly requested time series, including the All
Commodities Index and the stage-of-processing indexes (for example, Finished
Goods). Within each list, any one-or all-of the time series shown can be
selected. A user can modify the date range and output options after executing
the query, using the reformat button above the data output table.
One-Screen Data Search and Multi-Screen Data Search are form-based query
applications for both Industry Data and Commodity Data designed for users
unfamiliar with the PPI coding structure. These applications guide a user
through the PPI classification system by listing index titles and does not
require knowledge of commodity or industry codes. Data retrieved are based on
a query formulated by selecting data characteristics from lists provided. Two
options are available to create customized tables, depending on a user's browser
capability. The one-screen option is a JavaScript application that uses a
single screen to guide a user through the available time series data. The
second option is a multiple-screen, non-Java-based application. Both methods
allow a user to browse the PPI coding structure and select multiple series codes.
Using the one-screen option, users can modify the date range and output options
after executing the query using the reformat button above the data output table.
Series Report is a form-based application that uses formatted PPI time
series identifiers (commodity or industry codes) as input in extracting
data according to a specified set of date ranges and output options. This
application provides the most efficient path for users who are familiar
with the format of PPI time series identifiers. Up to 300 indexes can be
extracted at a time.
There are five alphabetic prefixes used to create unique PPI time
series identifiers: WP, WD, PC, PD, and ND. Each provides the user access
to a different PPI database. Adding either a "u" (not seasonally adjusted)
or an "s" (seasonally adjusted) to the end of these prefixes further
specifies the type of data needed.
For commodity and stage-of-processing indexes, series identifiers
combine a "wpu" prefix (not seasonally adjusted) or a "wps" prefix
(seasonally adjusted) with a commodity code.
Commodity code Provides data for:
wps141101 Passenger cars, seasonally adjusted
wpu141101 Passenger cars, not seasonally adjusted
wpusop3000 Finished goods, not seasonally adjusted
For discontinued commodity indexes, series identifiers combine a "wdu"
prefix (not seasonally adjusted) or a "wds" prefix (seasonally adjusted)
with a commodity code.
Commodity code Provides data for:
wds019 Other farm products, seasonally adjusted
wdu0635 Preparations, ethical (prescription), not seasonally
adjusted
wdusi138011 Stainless steel mill products, not seasonally adjusted
Current price indexes grouped by industry according to NAICS have series
identifiers that begin with the prefix "pcu." After the prefix, there are 12
digits (the 6-digit industry code is listed twice) followed by up to 7
alphanumeric characters identifying product detail. Dashes are used as
placeholders for higher-level industry group codes.
Industry-product code,
current NAICS series Provides data for:
pcu325---325--- Chemical manufacturing, not seasonally
adjusted
pcu336110336110 Automobile and light duty motor vehicle
manufacturing
pcu621111621111411 Offices of physicians, one- and two-physician practices and
single-specialty group practices, general/family practice
pcu325412325412A Pharmaceutical preparation manufacturing, pharmaceuticals
acting on the respiratory system
Discontinued industry-product codes based on SIC combine a "pdu"
prefix and "#" between the fourth and fifth characters of the product code.
Series identifiers for the discontinued dataset use underscores as
placeholders to complete a reference to an SIC industry group code of fewer
than four digits. (All PPI industry-based indexes organized by SIC were
discontinued with the introduction of NAICS.)
Industry-product code,
discontinued SIC series Provides data for:
pdu28__# Chemicals and allied products, not seasonally adjusted
pdu331_# Blast furnaces, steel works, and rolling and
finishing mills, not seasonally adjusted
pdu3711#111 Passenger cars
Price indexes for discontinued series grouped by industry according to
NAICS have series identifiers that begin with the prefix "ndu." After the
prefix, there are 12 numeric digits (the 6-digit industry code is listed
twice), and up to 7 additional alphanumeric characters that identify
product detail. Dashes are used as placeholders for higher-level industry
group codes.
Industry-product code,
discontinued NAICS series Provides data for:
ndu212231212231 Lead ore and zinc ore mining
ndu2122312122312 Lead and zinc concentrates
ndu212231212231214 Lead concentrates
Text Files (FTP) and the FTP server are best suited for users requiring
access to either a large volume of time series data or other PPI-related
documentation (such as seasonal factor and relative importance tables).
The FTP site can be accessed at ftp://ftp.bls.gov or directly from the
links on the "PPI Databases" page or the PPI homepage. Data and
documentation available for download include the following:
Directory:
Industry Data /pub/time.series/pc
Industry Data - Discontinued
NAICS basis /pub/time.series/nd
SIC basis /pub/time.series/pd
Commodity Data /pub/time.series/wp
Commodity Data, Discontinued
Series /pub/time.series/wd
Special requests /pub/special.requests/ppi
Latest news release /pub/news.release/ppi.txt
The FTP site maintains files to help with searches and downloads.
These files are centrally located in the /pub/doc directory. Within this
directory, the overview.txt file contains an overview relating to all BLS
data available through the FTP site. For current commodity-based PPI data,
the program help file is wp.txt; for discontinued commodity series, wd.txt;
for current industry-based PPI data based on NAICS, pc.txt; for industry-
based SIC time series that have been discontinued, pd.txt; and for industry-
based NAICS series that have been discontinued, nd.txt.
Users who prefer downloading PPI datasets as individual ZIP files
should go to the directory labeled /pub/time.series/compressed/tape.format/
on the FTP site. This directory includes six PPI-specific ZIP files, one
for each of the PPI databases-WP, WD, PC, ND, and PD-and a ZIP file for the
annual 5-year revision to historical seasonal PPIs.
Other Sources of PPI Data
PPI data can also be accessed via the BLS homepage (www.bls.gov).
Clicking on the "Get Detailed Statistics" link at the top of the homepage
calls up a chart listing all available BLS programs.
Additional information
The PPI homepage (www.bls.gov/ppi) contains additional information
regarding PPI data and methodology. The top section of the homepage
provides PPI news releases, both current and archived, as well as general
PPI information. The "Tables Created by BLS" section found beneath the
statistics section provides relative importance and seasonal factor tables.
The remaining sections offer special notices and publications pertaining to
PPI methodology and applications.
For questions or comments regarding PPI data classification,
methodology, or data availability on the Internet, call or e-mail the
Section of Index Analysis and Public Information at (202) 691-7705 or ppi-
info@bls.gov.
