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December 1994, Vol. 117, No. 12
Pricing practices for tobacco products, 1980-94
Craig Howell, Frank Congelio, and Ralph Yatsko
The Bureau of Labor Statistics producer and consumer prices indexes for tobacco products accelerated throughout the 1980's. In 1991, the indexes began to slow, and in1993, the Producer Price Index (PPI) for tobacco products dropped nearly 25 percent in just 1 month, and the corresponding Consumer Price Index for All Urban Consumers (CPI) fell nearly 6 percent. Since then, tobacco prices have been relatively stable.
An analysis of prices over the 1980-94 period reveal that the price increases for tobacco products did not result from higher manufacturing input costs. What factors, then, drove tobacco products, and, specifically, cigarette prices up?
This article sheds light on the price movements of tobacco products by looking at the pricing strategies of the U.S. tobacco industry, because prices for tobacco products have become a major factor in the swings in the inflation rate. The analysis focuses on movements of prices for cigarettes, given that cigarettes account for 80 percent to 90 percent of both the CPI and PPI for tobacco products, and because prices for cigarettes have been more volatile than prices for other kinds of tobacco products.
This excerpt is from an article published in the December 1994 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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