Article

January 2014

Analyzing price movements within the Producer Price Index Final Demand–Intermediate Demand aggregation system

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Price trends for services

Increases in refined petroleum product prices led to higher prices for many transportation services as transportation companies attempted to mitigate the impact of the rising cost of fuel by including fuel surcharges in the prices for their services.13 From November 2009 to June 2012, prices for airline passenger services climbed 19.7 percent, while the index for air transportation of freight jumped 24.9 percent. Prices for both long-distance and local motor carrying, as well as the index for rail transportation of freight and mail, also moved up at relatively steep rates.

Prices for trade services generally rose from November 2009 through June 2012. In the PPI, trade indexes measure changes in margins received by wholesalers and retailers.14 From late 2009 though early 2011, inflation for final-demand goods was 11.1 percent, but from mid-2011 to mid-2012, prices for final-demand goods were essentially flat. The PPI for final-demand trade services, which track changes in margins for goods sold to final demand, rose 4.5 percent from late 2009 through early 2011. This rate slowed to 3.2 percent in the latter period.

Unlike the indexes for trade services and transportation and warehousing services, the overall price movement for final-demand services other than trade and transportation was muted for the 31-month period, inching up 3.6 percent. From November 2009 to June 2012, over half of the rise can be traced to medical care inflation. However, prices for other nontrade and transportation services, such as banking deposit services and residential property sales and rental (brokerage fees and commissions), fell from November 2009 to June 2012 and partly offset the rise in medical services prices.

Final demand

The final-demand portion of the new PPI aggregation FD–ID system measures price changes for goods, services, and construction products sold as personal consumption, capital investment, government purchase, and export. The final-demand portion of the system includes an overall index measuring price change for all goods, services, and construction products sold to final demand (the PPI for final demand), as well as indexes for final-demand goods, final-demand services, and final-demand construction. Indexes tracking price changes for detailed types of commodities sold to final demand are also published. These categories include foods, energy, goods less food and energy, trade services, transportation and warehousing services, and services less trade, transportation, and warehousing.

The PPI for final demand increased 7.6 percent from November 2009 to June 2012, with prices for final-demand goods advancing 10.9 percent and the index for final-demand services moving up 5.6 percent. On a weighted basis, goods and services each accounted for about half of the overall rise in the final-demand index. Prices for final-demand construction climbed 5.5 percent from November 2009 to June 2012.15 (See table 1 and figure 1.) Final-demand price movements over this 31-month period can be divided into two main intervals, November 2009 to May 2011 and May 2011 to June 2012, with prices (excluding construction) rising at a substantially higher rate in the first interval compared with the second. In the first interval, the final-demand index climbed 6.1 percent, mainly because of an 11.1-percent jump in prices for final-demand goods. In the second interval, the final-demand index edged up 1.4 percent, mostly because of a 2.2-percent advance in prices for final-demand services. The index for final-demand goods inched down from May 2011 to June 2012.

Notes

13 For more information about fuel surcharges and their use by the transportation sector, see “The impact of fuel surcharges on the PPI,” Focus on Prices and Spending (U.S. Bureau of Labor Statistics, August 2011), http://www.bls.gov/opub/focus/volume2_number6/ppi_2_6.pdf, as well as “How new fees are affecting the Producer Price Index for air travel,” Beyond the Numbers (U.S. Bureau of Labor Statistics, May 2012), http://www.bls.gov/opub/btn/volume-1/pdf/how-new-fees-are-affecting-the-producer-price-index-for-air-travel.pdf.

14 For more information about wholesale and retail trade indexes in the PPI and the treatment of margins in the wholesale and retail trade sectors, see “Wholesale and retail Producer Price Indexes: margin prices,” Beyond the Numbers (U.S. Bureau of Labor Statistics, August 2012), http://www.bls.gov/opub/btn/volume-1/pdf/wholesale-and-retail-producer-price-indexes-margin-prices.pdf.

15 As of December 2011, the relative-importance values for final-demand goods, services, and construction with respect to overall final demand were 34.721 percent, 63.520 percent, and 1.759 percent.

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About the Author

Brian Hergt
hergt.brian@bls.gov

Brian Hergt is an economist in the Division of Industrial Prices and Price Indexes, Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics.

Joseph Kowal
kowal.joseph@bls.gov

Joseph Kowal is an economist in the Division of Industrial Prices and Price Indexes, Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics.

Jonathan C. Weinhagen
weinhagen.jonathan@bls.gov

Jonathan C. Weinhagen is an economist in the Division of Industrial Prices and Price Indexes, Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics.