Special Notice for Prescription Drugs Index
August 14, 1998
The Bureau of Labor Statistics (BLS) recently reported large
increases in the Producer Price Index (PPI) for prescription
pharmaceuticals (series code WPU0635). This fact sheet provides
more information on these increases, summarizes their effects on
aggregate indexes, and briefly describes PPI index calculation
(1) The PPI for prescription pharmaceuticals
increased 22.3 percent in the 12 months ended in July 1998. What
accounts for this increase?
The PPI for prescription pharmaceuticals is a weighted average
of some 47 separate indexes for individual therapeutic categories
of drugs. In the 12 months ended in January 1998, the PPI for
prescription pharmaceuticals rose 3.0 percent. The run up in the
six months since January in the prescription pharmaceuticals
index is primarily the result of a large increase in the index
for the psychotherapeutics category (series code WPU06359925).
That index rose 12.7 percent in February, 183.4 percent in March,
and 5.7 percent in July. Over the six-month span, the index for
psychotherapeutics rose from a level of 445.2 in January to a
level of 1503.0 in July 1998.
(2) What was the impact of the increase in the
psychotherapeutics index on aggregate producer price indexes?
The recent run up in the psychotherapeutics index had a
considerable impact on aggregate producer price indexes. Prices
for prescription drugs exclusive of psychotherapeutics rose 6.1
percent in the 12 months ended in July 1998; the overall
prescription drugs index rose 22.3 percent over that period.
Similarly, the PPI for finished goods exclusive of
psychotherapeutics decreased 0.6 percent in the year ended in
July 1998 while the PPI for Finished goods decreased 0.3 percent
over that 12-month period.
(3) Could the recent large increases in the
psychotherapeutics index possibly be accurate?
The January-July increases in this index accurately reflected
the actual price data reported by the firms sampled by the PPI
for psychotherapeutics. As described in (4) below, however,
estimates of price change as measured by the PPI are based on
scientifically selected samples of products and producers and
thus are subject to the variability inherent in the sampling
process. Because the recent large increase in the
psychotherapeutics index resulted from price changes by a small
number of producers for a small number of individual drugs,
sampling variability may well have played a role in the recent
behavior of the PPI for prescription pharmaceuticals.
(4) How is the PPI put together?
PPI index calculation involves two stages. In the first,
"basic" indexes for product categories are calculated
by averaging the price movements of individual items. Each item
carries a weight based on its value of shipments as reported by
the producer at the time of its introduction to the index. These
items represent both themselves and all non-sampled items that
are members of the product category universe. The average number
of items in each of the 47 basic indexes for prescription drug
therapeutic categories is 13.
In the second stage of PPI index calculation, basic indexes
are combined with appropriate weights into a series of
successively broader aggregate indexes. The psychotherapeutics
index is an aggregate index that combines three basic indexes:
minor tranquilizers, major tranquilizers, and antidepressants.
The weight for a basic index is based on the value of shipments
for that product category. This weight, as well as that for all
other basic indexes, comes from the 1992 economic censuses of the
U.S. Department of Commerce. The weight is effectively updated
monthly by the price movement for the basic index relative to the
price movement for all other basic indexes.
As of December 1997, the weight, or relative importance, of
psychotherapeutics was 6.794 percent of the weight for
prescription pharmaceuticals, which in turn accounted for 1.924
percent of the PPI Finished goods index.
(5) How is the sample size for a producer price index
Each industry covered by the PPI has an individually designed
sample. The designated sample size for an industry is a function
of its size, degree of concentration, the relative variance of
its historical price index, and the rate at which its firms
voluntarily agreed to participate in past PPI surveys. When last
sampled in 1993, the designated sample size for the
Pharmaceutical Preparations industry was 965 items from 124
manufacturers. These sample items were allocated to basic indexes
for therapeutic categories proportional to the size of categories
and the relative variance of historical category price indexes.
BLS is currently implementing a long-term strategy to
significantly reduce the number of PPI basic indexes and
significantly increase the average number of price quotes used
for each such index. The new design is being deployed for
industries covered by the PPI as each is resampled between 1997
and 2004. The Pharmaceutical Preparations industry is scheduled
for resampling in 1999. For more information on the new design,
see "Change in PPI Publication Structures for Resampled
Industries Introduced in January 1997," PPI Detailed
Report, Data for January 1997.
(6) Which company(ies) reported the large increase(s)
reflected in the psychotherapeutics index?
All respondents to BLS surveys participate on a voluntary
basis. In order to obtain sensitive economic data that otherwise
might not be available, the Bureau keeps strictly confidential
the identity of respondents to all of its surveys.
(7) Is the recent increase in the psychotherapeutics index
subject to revision?
Every PPI is systematically recalculated four index months
after it is first published to take into account any late survey
reports or price corrections supplied by sampled firms. The
latest final recalculated PPI is for the March 1998 index month.
The data for the four index months since March are subject to
revision, but only to reflect any late survey reports or price
corrections that might be supplied by firms.
For more information on the PPI, call the Section of Index
Analysis and Public Information at (202) 691-7705.
Bureau of Labor Statistics
August 14, 1998
Last Modified Date: October 16, 2001