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July 2009, Vol. 132, No. 7

Producer prices reverse course in 2008

Joseph Kowal, William Snyders, Antonio Lombardozzi, and Lana Borgie

In a turnaround, the Producer Price Index (PPI) for finished goods fell 0.9 percent in 2008 after having risen 6.2 percent in 2007.¹ The 2007 increase was the largest calendar-year advance since a 7.1-percent jump in 1981, and the 2008 decline was the first year-over-year decrease since a 1.6-percent drop in 2001. Similarly, the index for intermediate materials, supplies, and components—which reflects selling prices for goods produced at earlier stages of processing—moved down 2.3 percent in 2008 after having climbed 7.1 percent in 2007.² The index for crude materials for further processing—that is, unprocessed goods and raw materials—dropped 24.6 percent in 2008 following a 19.8-percent rise in 2007. The decreases at the earlier stages of processing also were the largest calendar-year declines since 2001, when the intermediate goods index moved down 4.0 percent and crude goods prices fell 32.5 percent. The reversals in 2008 are primarily attributable to prices for energy goods, which plummeted after having increased sharply a year earlier. In addition, prices for foods within the finished and intermediates goods stages advanced at much slower rates than they had in 2007, while the crude foodstuffs and feedstuffs index turned down in 2008.

Changes in the PPIs for services were not consistent with those of the mining and manufacturing sectors. Price increases for total transportation and warehousing industries slowed to 3.1 percent in 2008 from 6.6 percent in the previous year, and the index for total traditional services industries rose 0.3 percent following a 1.8-percent increase in 2007. By contrast, margins received by total trade industries rose 7.3 percent in 2008 after having gone up by 3.9 percent a year earlier.

This excerpt is from an article published in the July 2009 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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Footnotes
1 Finished goods are commodities that are ready for sale to final-demand users, either as durable or nondurable goods for consumers or as capital equipment for businesses.

2 Intermediate goods consist of material and component inputs for manufacturing and construction, as well as supplies for all types of businesses.

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