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Bureau of Labor Statistics > Office of Survey Methods and Research > Publications > Browse Research Papers

An Alternative Formula for Elementary Producer Price Indexes

Robert Martin, Andy Sadler, Sara Stanley, William Thompson, and Jonathan Weinhagen

Abstract

We re-estimate historical U.S. Producer Price Indexes (PPI) using the geometric Young formula at the elementary level. The geometric Young has better axiomatic properties than the modified Laspeyres, and may better approximate a feasible economic target. We find in most cases, indexes that use the geometric Young escalate between 0.1 and 0.3 percentage points less each year than those that use the modified Laspeyres. However, for wholesale and retail trade, as well as some other services, the differences are much larger. As a result, using the geometric Young at the elementary level lowers the PPI for Final Demand by 0.55 percentage points per year during the study period, a magnitude larger than what has been previously found for the U.S. Consumer Price Index.