January 2014

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


Economic background and commodity price trends

After a steep decline in 2008 and the first half of 2009, gross domestic product (GDP) growth in the United States resumed in the third quarter of 2009. For the next six quarters, through the close of 2010, U.S. GDP grew at a moderate rate.6 During this period, a similar turnaround was occurring in many other parts of the world.7 Beginning in 2011 and continuing into 2012, GDP growth slowed considerably in the United States: U.S. GDP growth slowed to 1.8 percent in 2011 and estimates for the first half of 2012 show expansion at less than 2.0 percent.8 Furthermore, economic expansion slowed in many other parts of the world. In 2011, Japan and parts of the European Union entered a recession, and growth slowed in Canada, the United Kingdom, and many parts of Asia and Latin America.

Price trends for goods

Economic expansion that began in the second half of 2009 and continued through 2010 helped drive up prices for unprocessed goods such as crude petroleum, iron and steel scrap, nonferrous scrap and ores, and wastepaper. (From November 2009 to May 2011, the PPI for crude petroleum jumped 35.7 percent, while prices for core crude goods climbed 45.4 percent.9) Crude petroleum prices also likely increased in response to uncertainty due to political unrest in Libya, Egypt, and Tunisia. The surge in crude petroleum prices contributed to advances in prices for products made from petroleum, including gasoline, diesel fuel, jet fuel, heating oil, and liquefied petroleum gas, and nonenergy goods such as basic organic chemicals, thermoplastic resins, and plastic products.

The worldwide economic slowdown that began in 2011 contributed to a reversal in U.S. producer prices for many goods from May 2011 to June 2012. Falling prices for highly volatile energy goods led the decline. Gasoline prices dropped 13.2 percent; liquefied petroleum gas, 40.0 percent; diesel fuel, 9.3 percent; and jet fuel, 14.5 percent. In addition, a large increase in natural gas production resulted in a substantial decline in prices for both wellhead natural gas and utility natural gas. Prices for organic chemicals, carbon steel scrap, integrated microcircuits, and computers also fell over this period.

As was the case with most goods, unprocessed foods such as corn, wheat, and soybeans experienced significant price increases from November 2009 through May 2011—climbing 92.7, 73.4, and 45.8 percent, respectively. However, unlike prices for many other goods, prices for unprocessed foods continued to rise after May 2011. After peaking in 2009, both corn production and yield steadily declined.10 For wheat, despite somewhat more consistent production, yearend stocks fell in both the 2010–2011 and the 2011–2012 growing seasons, in response to increased export demand.11 Corn, wheat, and soybeans were affected by poor growing seasons within and outside the United States, and corn prices also were influenced by growing demand for ethanol.12 In response, the index for prepared animal feeds jumped 23.8 percent from November 2009 through June 2012, and prices for meats, poultry, and dairy products also climbed. These advances drove the steep run-up in foods prices from November 2009 through May 2011, as well as the more modest increases observed from May 2011 through June 2012.


6 Gross Domestic Product: second quarter 2012 (second estimate), BEA 12–35 (Bureau of Economic Analysis, August 29, 2012), p. 6,

7 “Navigating strong currents,” Global Economic Prospects (The World Bank, January 2011), p. 4,

8 See note 6.

9 Within the PPI stage-of-processing structure and new aggregation system, the indexes for goods other than foods and energy commonly are referred to as the core indexes.

10 “Corn yield plummets as drought continues,” Feed Outlook, FDS-12h (U.S. Department of Agriculture, August 14, 2012), p. 1 (figure 1),

11 “Higher production and imports push supplies up,” Wheat Outlook, WHS-12h (U.S. Department of Agriculture, August 14, 2012), p. 17,

12 “Higher corn acreage and yield boosts supplies, corn exports projected higher,” Feed Outlook, FDS-12a (U.S. Department of Agriculture, January 17, 2012), p. 4 and p. 6 (figure 7), The 5 billion bushels of corn marketed for ethanol production in 2011 reflected about 40 percent of total corn production for that year, 12.358 billion bushels.

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About the Author

Brian Hergt

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

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

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.