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March 1993, Vol. 116, No. 3
Roger Burns, Harry Briggs, and William Thomas
B eginning with data for January 1992, the weights used to construct Producer Price Indexes (PPI) were updated to reflect 1987 shipment values of commodities. From January 1987 through December 1991, weights were based on 1982 shipment values. Most of the weight shifts reflected changes in the American economy during the 1982-87 period; however, some of the shifts are attributable to coincidental alterations in the structure or pricing procedures in the PPI.
Weights for individual products in the PPI are based on the shipment values of the commodity, as measured by the Census of Manufactures and other sources.1 For categories broader than individual products, indexes are calculated using weighted averages of the components. Weights at all levels of aggregation and detail are implicitly adjusted each month in accordance with relative monthly price changes; that is, groupings or items whose prices are rising faster than average automatically attain proportionately increased weight, while weights for other categories simultaneously decrease. Over a period of years, however, such implicitly adjusted weights may no longer reflect contemporary production patterns. Therefore, it is occasionally necessary to revise the PPI weight structure by updating shipment values through what is called a major weight revision. Because the Census of Manufactures is conducted every 5 years, PPI weights ideally should be updated on a 5-year cycle.
This latest major weight revision affected all PPI series derived from the commodity code system, including stage-of-processing, durability-of-product, and special commodity groupings. It did not affect the PPI series for the net output of selected industries and their products, whose weights are updated on an industry-by-industry basis as part of the periodic resampling process; most of these industry and product weights already are based on 1987 shipment values. The proportional allocations of commodity series to the various stage-of-processing categories continue to be based on 1972 input-output data.
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1 For a detailed analysis of the concepts underlying PPI weights and a description of the previous PPI weight revision, see Andrew Clem and William Thomas, "New weight structure being used in the Producer Price and Wage index," Monthly Labor Review, August 1987, pp. 12-21. Also see BLS Handbook of Methods, Bulletin 2414 (Bureau of Labor Statistics, September 1992) Chapter 16, "Producer Prices."
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