Producer Price Index Transitions from the Stage-of-Processing to the Final Demand-Intermediate Demand Aggregation System

Effective with the January 2014 Producer Price Index (PPI) data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. This shift resulted in significant changes to the PPI news release, as well as other documents available from PPI. The transition to the FD-ID system was the culmination of a long-standing PPI objective to improve the current SOP aggregation system by incorporating PPIs for services, construction, government purchases, and exports. In comparison to the SOP system, the FD-ID system more than doubled PPI coverage of the United States economy to over 75 percent of in-scope domestic production. The FD-ID system was first introduced as a set of experimental indexes in January 2011. Nearly all new FD-ID goods, services, and construction indexes provide historical data back to either November 2009 or April 2010, while the indexes for goods that correspond with the historical SOP indexes go back to the 1970s or earlier.

The FD-ID system highlights the index for final demand, which measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports. The composition of products in the final demand price index differs from that of the previous headline index, finished goods, in two major respects. First, it includes government purchases and exports. Second, it includes services and construction, which are not reflected in finished goods.

The FD-ID system also includes two separate parallel treatments of intermediate demand: price changes for goods, services, and construction sold to business as inputs to production. The first treatment, intermediate demand by commodity type, measures price changes based on similarity of product and includes aggregate indexes for processed goods for intermediate demand, unprocessed goods for intermediate demand, and services for intermediate demand.

The second treatment, intermediate demand by production flow, is a stage-based system of price indexes, where price changes for goods, services, and construction can be studied as they move through the production chain of the economy to final demand. This treatment includes four stages of intermediate demand, which were established to maximize forward flow of production through the economy, while minimizing backflow of production.

These FD-ID indexes are constructed using PPI commodity indexes for goods, services, and construction, where products are assigned to various categories according to buyer type and level of fabrication. A product purchased by different classes of buyers is assigned to multiple FD-ID aggregates, with unique weights allocated to each aggregate based on the product’s value of shipments to each buyer type.

To assist with the transition to the FD-ID system, PPI provided, on a monthly basis, a version of the PPI news release based on the FD-ID model, starting with the publication of July 2013 data in August. These documents are labeled “Experimental” and were posted to the PPI FD-ID Aggregation System webpage about two weeks after each month’s scheduled PPI release. That webpage also contains detailed methodological information for the FD-ID aggregation system. With the publication of January 2014 data in February 2014, the FD-ID version of the PPI news release became the official news release document of record.

Further information is available from the PPI Section of Index Analysis and Public Information, at ppi-info@bls.gov or (202) 691-7705.

 

Last Modified Date: February 19, 2014