Frequently Asked Questions (FAQs)
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1. What is the Producer Price Index (PPI)?
The Producer Price Index is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective.
About 10,000 PPIs for individual products and groups of products are released each month. PPIs are available for the output of nearly all industries in the goods-producing sectors of the U.S. economy— mining, manufacturing, agriculture, fishing, and forestry— as well as natural gas, electricity, construction, and goods competitive with those made in the producing sectors, such as waste and scrap materials. The PPI program covers approximately 72 percent of the service sector's output, as measured by revenue reported in the 2007 Economic Census.
2. How are PPIs used?
Producer Price Index data are widely used by the business community as well as by government. Three major uses are:
As an economic indicator. In January 2014, PPI transitioned from the Stage of Processing (SOP) system to the Final Demand-Intermediate Demand (FD-ID) system as its primary index aggregation structure. The transition to the FD-ID system is the culmination of a long-standing PPI objective to improve the SOP system (domestically produced goods for domestic, nongovernment consumption) by incorporating PPIs for services, construction, government purchases, and exports. The FD portion of the FD-ID system expands coverage relative to the finished goods stage of the SOP system by including indexes that examine inflation from the producer perspective for goods, services, and construction sold as personal consumption, capital investment, government purchase, and export. The ID portion of the system allows data users to examine inflation from the producer perspective for goods, services, and construction sold to businesses as inputs to production, excluding capital investment. The ID portion of the system includes two parallel treatments of intermediate demand: commodity type and production flow. The commodity-type treatment tracks price movements for services purchased by businesses, in addition to price movements for processed and unprocessed goods. The production flow treatment of intermediate demand tracks price changes as they course through the various stages of production. The production flow treatment provides an opportunity to systematically monitor and assess to what degree changes in rates of inflation faced by producers at earlier stages of production are transmitted to subsequent stages, including final demand. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies.
FD-ID indexes are constructed from commodity-based producer output price indexes. These commodity-based output price indexes are allocated to aggregate categories based on proportions of use by type of buyer. The main source of data used to determine buyer type is the table titled "Use of commodities by industries, before redefinition" from the Benchmark Input-Output Data Tables of the United States, produced by the U.S. Bureau of Economic Analysis (BEA). The two primary classes of buyers included in the FD-ID system are final demand (personal consumption, capital investment, government, export) and intermediate demand (business purchases, excluding capital investment). In many cases, the same commodity is purchased by different buyer types, so commodities are often included in several FD-ID indexes. For example, regular gasoline is purchased for personal consumption, export, government use, and business use. The PPI program publishes only one commodity index for regular gasoline, reflecting sales to all types of buyers. It is this index that is used in all FD-ID aggregations, regardless of whether the gasoline is sold for personal consumption, as an export, to government, or to businesses, with differences accounted for in the applicable weights to each aggregate FD or ID index. In some cases, buyer type is an important price determining characteristic, and results in commodity indexes being created on that basis. For example, within the PPI category for loan services, separate indexes for consumer loans and business loans were constructed. In this case, the commodity index for consumer loans would be included in the final demand index and the commodity index for business loans would fall under intermediate demand
As a deflator of other economic series. PPIs are used to adjust other economic time series for price changes and to translate those series into inflation-free dollars. For example, constant-dollar gross domestic product data are estimated using deflators based on PPI data.
As the basis for contract adjustment. PPI data are commonly used in adjusting purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an adjustment clause that accounts for changes in input prices. For example, a long-term contract for bread may be adjusted for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. (See Price Adjustment Guide for Contracting Parties.)
3. When did the Wholesale Price Index become the Producer Price Index?
The Wholesale Price Index (WPI) was the name of the program from its inception in 1902 until 1978, when it was renamed the Producer Price Index. At the same time, emphasis was shifted from one index encompassing the whole economy to the SOP system consisting of three main indexes covering stages of production in the economy. By changing emphasis, BLS minimized the double counting phenomenon inherent in aggregate commodity-based indexes. In 2014, PPI shifted from the SOP system to the FD-ID system. The FD-ID system expands primary aggregate index coverage beyond the SOP system through the addition of prices and weights for services, construction, government purchases, and exports.
The change in name from Wholesale Price Index to Producer Price Index did not include a change in index methodology, and the continuity of the price index data was unaffected. The name change reflects the theoretical model of the output price index that underlies the PPI. (See BLS Working Paper 44, "On the Theory of Industrial Price Measurement: Output Price Indexes.") In addition, the term Wholesale Price Index was misleading in that the index never measured price change in the wholesale market. No indexes were discontinued as a result of the changes in terminology or analytical emphasis.
4. How does the Producer Price Index differ from the Consumer Price Index?
While both the PPI and CPI measure price change over time for a fixed set of goods and services, the CPI and PPI differ for three main reasons:
The target set of goods and services included in the PPI is the entire marketed output of U.S. producers. This includes goods, services, and construction products purchased by other producers as inputs to their operations or as capital investment, goods and services purchased by consumers either directly from the service producer or indirectly from a retailer, and products sold as export and to government.
The target set of items included in the CPI is the set of goods and services purchased for consumption purposes by urban U.S. households.
The target set of items differs between CPI and PPI in a number of areas: (1) the CPI includes imports, while imports are excluded from PPI; (2) owners' equivalent rent is included in CPI, but not in PPI; (3) the CPI only includes components of personal consumption that are directly paid for by the consumer, whereas the PPI includes components of personal consumption that are not paid for by the consumer (for example, medical services paid for by government or insurance companies); (4) the PPI includes exports, while the CPI does not; (5) the PPI includes government purchases, while the CPI does not; and (6) the PPI includes sales to businesses as inputs to production, including capital investment, whereas the CPI does not.
The price collected for an item included in the PPI is the revenue received by its producer. Sales and excise taxes are not included in the price because they do not represent revenue to the producer. The price collected for an item included in the CPI is the out-of-pocket expenditure by a consumer for the item. Sales and excise taxes are included in the price because they are necessary expenditures by the consumer for the item.
In contrast to the CPI, PPI currently does not have complete coverage of services. PPI began expanding coverage beyond mining, manufacturing, agriculture, and utilities in the mid 1980s, introducing its first services price index in 1985, and PPI's effort to expand coverage into the services sector of the economy is ongoing. PPI currently covers approximately 72 percent of services as measured by 2007 Census revenue. Since PPI does not have complete coverage of its targeted set of in-scope services, a number of consumer services are included in the CPI that are not included in the PPI. Among the most important of these are education services and residential rent.
The differences between the PPI and CPI (except for coverage) are consistent with the different uses of the two measures. A primary use of the PPI is to deflate revenue streams in order to measure real growth in output. A primary use of the CPI is to adjust income and expenditure streams for changes in the cost of living.
For more information see "How Does the Producer Price Index Differ from the Consumer Price Index?"
5. How is an index interpreted?
An index is a tool that simplifies the measurement of movements in a numerical series. Movements are measured with respect to a base period, when the index is set to 100. Currently, some PPIs have an index base set at 1982 = 100, while the remainder have an index base that corresponds with the month prior to the month that the index was introduced. BLS measures price change in relation to that figure. An index level of 110, for example, means there has been a 10-percent increase in prices since the base period; similarly, an index level of 90 indicates a 10-percent decrease in prices. Movements of price indexes from one month to another are usually expressed as percent changes rather than as changes in index points because index point changes are affected by the level of the index, while percent changes are not. An advantage of calculating percent changes is that the result will be the same no matter what base period is specified. The example below demonstrates the computation of index point and percent changes.
6. How are PPIs calculated?
The formula used to calculate PPIs is a modified Laspeyres index. The Laspeyres index compares the base period revenue for a set of products to the current period revenue for the same set of products.
The following formula closely approximates the actual computation procedure:
In this form, the index is the weighted average of price relatives (price ratios for each item. The expression represents the weights in value form.
7. How are PPIs weighted?
To improve the precision of PPI estimates of price change, sampled items are weighted by a measure of their size and importance. In the first stage of PPI computation, price indexes are constructed for narrowly-defined groupings of goods or services. The individual items included in these indexes are weighted by the producing establishment's revenue for the product line. In the second stage of PPI computation, indexes for individual goods and services are combined into aggregate indexes. Data for weighting together the product-line indexes comes primarily from the economic censuses of the Bureau of Census. These weights are updated every 5 years.
The weights for combining product-line indexes into aggregate indexes are somewhat different for each of the three types of aggregate indexes. For industry net output indexes, product-line weights are the value of shipments from establishments in the industry primarily engaged in the production of the product to establishments outside of the industry. For the commodity grouping indexes, product line weights are the gross value of shipments across all industries engaged in the production of the product. For the commodity Final Demand-Intermediate Demand indexes, the product-line weights from the commodity grouping indexes are allocated to higher level indexes based on relationships seen in the U.S. input-output accounts and type of commodity.
8. How are producers and products selected for the PPI survey?
PPIs are published for the output of almost all industries in the goods-producing sectors of the U.S. economy, and, while more indexes are gradually being introduced, currently are available for slightly less than three-quarters of the service sector. For any given industry, producers are usually selected for the survey using a systematic sampling from a listing of all firms that file with the Unemployment Insurance System. Occasionally, supplementary information from other publicly available lists is used to refine the industry's frame of establishments. For service-sector industries in particular, it is sometimes necessary to use frames other than the list from the Unemployment Insurance system so that additional establishment data can be analyzed. Typically, a firm's probability of selection is based on its employment size. After a firm is selected and agrees to participate in the survey, a probability sampling technique called disaggregation is used to determine which specific products or services will be included in the PPI.
Disaggregation is a process in which iterative steps are taken to select items based on their proportionate value to the manufacturer's overall revenue. First, a respondent breaks down the type of items shipped into categories. Next, these categories are broken down further by price determining characteristics— for example, options, color, and size. Further breakdowns may be necessary to differentiate between types of buyers or discounts. Disaggregation continues until a specific product sold to a specific buyer is selected.
9. How are PPI data collected?
When an establishment is selected to participate in the PPI survey, it is visited by a field economist who solicits the firm's voluntary cooperation and informs the firm of the strict confidentiality rules that will safeguard the information being requested. Once cooperation is obtained, the field economist uses the disaggregation technique (see Question 8) to select the specific goods or services for which prices will be reported.
From that point forward, the establishment reports prices for the selected products, usually on a monthly basis, using a secure website. Establishments are asked to report their prices as of Tuesday of the week containing the 13th of the month. Each month over 100,000 prices are solicited from roughly 25,000 reporters. If the establishment fails to report or reports incomplete information, it is called by a BLS economist who requests the needed information. Establishments continue to report until a new sample is selected for the industry— after 7 to 8 years, on average.
10. Why are some PPIs seasonally adjusted?
Because PPI data are used for different purposes, BLS publishes seasonally adjusted, as well as, unadjusted indexes. All Final Demand-Intermediate Demand indexes are published on both an unadjusted and seasonally adjusted basis. In addition, certain 3-digit, 4-digit, and 6-digit commodity classification series are selected for seasonal adjustment, when statistical tests indicate seasonality and if there is an economic rationale for the observed seasonality. Indexes for 2-digit commodity groupings and 8-digit individual commodities, as well as industry classified indexes, are published only as unadjusted indexes.
11. When should seasonally adjusted PPIs be used?
Seasonally adjusted indexes are preferred for analyzing short-to-medium-term price trends in the economy because such indexes eliminate the effect of changes that normally occur at about the same time and in about the same magnitude every year. Such recurring movements may result from normal weather patterns, regular production and marketing cycles, model changeovers, seasonal discounts, and holidays. These recurring price movements are removed from seasonally adjusted data, revealing underlying price trends.
Unadjusted data are of primary interest to users who need information that can be related to actual dollar-value transactions. Individuals requiring this information include marketing specialists, purchasing agents, budget and cost analysts, contract specialists, and commodity traders. Unadjusted data are virtually always used for escalating contracts, purchase agreements, or real estate leases.
12. Are actual prices published?
No, BLS publishes only indexes, not actual or average prices. Of course, actual transaction prices are used in the calculation of the indexes. Actual prices are not published because they are provided on a voluntary and confidential basis by PPI survey respondents. Should a PPI user have a need for a time series of actual prices for an item, BLS suggests that the user obtain an actual price from a published source, such as a trade journal, and move it forward or backward by the change in the applicable PPI.
13. What types of indexes are published?
There are three main PPI classification structures which draw from the same pool of price information provided to the BLS by cooperating company survey respondents:
Other publication structures include:
14. Are Producer Price Indexes subject to change after being published?
Yes. After an index is first published, it is subject to recalculation to take into account late survey reports and corrections by respondents. Every index is recalculated on a systematic basis— 4 index months after being first published. In addition, previously published seasonally adjusted indexes are subject to change in January when new seasonal factors are calculated and applied to the most recent 5 years of data.
15. Why do some PPIs go in and out of publication or disappear altogether?
PPIs go out of publication if they fail to meet either of the following conditions.
16. Is the base period subject to change?
Yes, although infrequently implemented, the official reference period is subject to change through a process called rebasing. This makes it easier to compare PPIs with other economic series compiled by the Federal Government. The switch to the 1982 reference period occurred in January 1988 to comply with the mandate of the Office of Management and Budget to implement common reference periods for all government statistics. See Special Notice for Rebasing of Selected Producer Price Indexes.
17. What historical data are available?
The Producer Price Index program is the oldest continuous statistical series of the Federal Government. When first published in 1902, it covered the years from 1890 through 1901. A few major commodity-based indexes are available from the early 1900s. The FD-ID system was introduced first as a set of experimental indexes in January 2011 before becoming the primary PPI aggregation structure with the publication of January 2014 indexes. All of the former SOP indexes are included in the FD-ID structure. 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. Most manufacturing and mining industry indexes are available only since the early 1980s. Some industry based indexes for services began publication as early as the mid 1990s; most provide data going back at least to the early-to-mid 2000s.
18. What price index should I use for adjustment?
Generally, an index should be chosen that represents the costs for providing a particular product or service, rather than indexes for the products or services being sold. For example, if an apparel manufacturer is contracting for long-term purchases with a producer of finished fabrics, it would be advisable to tie the adjustment clause to a PPI for synthetic fibers rather than to a PPI for a type of finished fabric.
As to the level of index aggregation or detail that might be chosen, it should be understood that while detailed indexes may target costs more precisely, detailed indexes are more likely to be discontinued by BLS, or to have occasional gaps in availability. Contracts should provide for these contingencies, and may minimize them if they cite only the higher level categories. In addition, because of the unavailability of certain indexes, proxies must sometimes be chosen to estimate price movements for some series. Also see Price Adjustment Guide for Contracting Parties and PPI Industry or Commodity Data: Which Better Suits Your Needs? (PDF).
19. Where are PPI data published?
PPI News Release. This publication contains a text explanation of key aggregate index movements during the month and various supporting data tables for major components of the Final Demand-Intermediate Demand indexes. It is published monthly on a scheduled release day (see Question 20).
PPI Detailed Report. This PPI publication is the most comprehensive monthly publication on producer prices. It contains all aggregate industry level and detailed commodity level indexes as well as text, tables, notes, and special articles. The Detailed Report is made available at the same time as the news release on the PPI website.
Focus on Prices and Spending and Beyond the Numbers. These quarterly publications include PPI data analysis and short, informative articles.
Online databases. Electronic access to current and discontinued historical PPI data is available through the BLS LABSTAT databases in html, text, and Excel format. Instructions for downloading PPI data from the BLS website are provided by the PPI Data Retrieval Guide.
BLS News Service. Sign up for this service and the monthly Producer Price Index news release will be delivered to you by e-mail at no cost to you.
20. When are PPI data made available?
PPIs are published monthly. First-published data for a particular month, as well as, recalculated indexes (final figures) for the indexes published four months earlier, are available the following month of reference, usually during the second full week. For example, on August 14, 2013, first-published PPIs for July 2013 and final indexes for March 2013 were released. In September 2013, first-published indexes for August and recalculated figures for April were released. Data are posted shortly after 8:30 am on dates as announced in the online release calendar.
21. What does the Final Demand-Intermediate Demand system measure?
The final demand portion of the FD-ID system measures price changes from the producer perspective for commodities sold as personal consumption, capital investment, to government, and as exports. The system is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services excluding trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes from a producer perspective for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. The system includes two parallel treatments of intermediate demand. The first treatment organizes intermediate demand commodities by type and is composed of six main price indexes: unprocessed goods for intermediate demand; processed goods for intermediate demand; intermediate demand trade services; intermediate demand transportation and warehousing services; intermediate demand services less trade, transportation, and warehousing; and intermediate demand construction. The second treatment organizes intermediate demand commodities into production stages, with the explicit goal of developing a forward-flow model of production and price change. These indexes can be used to study price transmission across stages of production and final demand. This system is constructed in a manner that maximizes forward flow of production between stages, while minimizing back-flow of production. The production flow treatment contains four main indexes: intermediate demand stage 1, intermediate demand stage 2, intermediate demand stage 3, and intermediate demand stage 4.
FD-ID indexes are constructed from commodity-based producer output price indexes. These commodity-based output price indexes are allocated to aggregate categories based on proportions of use by type of buyer. The main source of data used to determine buyer type is the table titled "Use of commodities by industries, before redefinition" from the Benchmark Input-Output Data Tables of the United States, produced by the U.S. Bureau of Economic Analysis (BEA). The two primary classes of buyers included in the FD-ID system are final demand (personal consumption, capital investment, government, export) and intermediate demand (business purchases, excluding capital investment). In many cases, the same commodity is purchased by different buyer types, so commodities are often included in several FD-ID indexes. For example, regular gasoline is purchased for personal consumption, export, government use, and business use. The PPI program publishes only one commodity index for regular gasoline, reflecting sales to all types of buyers. It is this index that is used in all FD-ID aggregations, regardless of whether the gasoline is sold for personal consumption, as an export, to government, or to businesses, with differences accounted for in the applicable weights to each aggregate FD or ID index. In some cases, buyer type is an important price determining characteristic, and results in commodity indexes being created on that basis. For example, within the PPI category for loan services, separate indexes for consumer loans and business loans were constructed. In this case, the commodity index for consumer loans would be included in the final demand index and the commodity index for business loans would fall under intermediate demand.
Weights for commodity components of the FD-ID indexes can be found in the Relative Importance Tables section of the PPI homepage.
Also on the PPI website you may find a Summary of the FD-ID system. For a detailed explanation relating to the construction of the FD-ID system, see "A new, experimental system of indexes from the PPI program" (PDF) in the February 2011 Monthly Labor Review, or visit the FD-ID Aggregation system web page. More detail about overall PPI methodology is available from the PPI chapter of the BLS Handbook of Methods.
22. Why did the PPI switch from the Stage-of-Processing to the FD-ID system?
Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) system. The transition to the FD-ID system is the culmination of a long-standing PPI objective to improve the SOP aggregation system by incorporating PPIs for services, construction, government purchases, and exports into the primary aggregation structure. In comparison to the SOP system, the FD-ID system provides for an increase of over 150 percent compared with current PPI coverage of the United States economy in its primary aggregate indexes, to over 75 percent of in-scope domestic production. 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. This expansion of coverage in the program's primary aggregate indexes was made possible by PPI's expansion into services and construction indexes over the past 25 years, first in the PPI industry-based structure and since 2009 in the program's commodity indexes.
23. What are the more volatile components of the FD-ID system?
Historically, PPIs for food and energy goods have exhibited greater short-term volatility than PPIs for goods other than food and energy. As a result, the Program introduced a number of indexes tracking changes in prices for goods excluding one or both of these potentially volatile components. For those who prefer it, this information has permitted data users to analyze movements in prices to the exclusion of potentially large movements in food and energy prices. With PPI's transition from the SOP to the FD-ID system, PPI continues to produce these indexes. In addition, with the FD-ID expansion that includes prices for many services, it has been observed that the indexes for wholesale and retail trade, which measure changes in margins, also are subject to potentially large short-term changes in prices. Consequently, to assist data users looking to exclude this volatility, PPI calculates a number of indexes excluding prices for trade services. These indexes include final demand services less trade services and final demand less trade services. In addition, PPI calculates an index for final demand less foods, energy, and trade services, removing all three potentially volatile components.
24. Does the PPI include tariffs in its estimates of price change?
The Producer Price Index (PPI) measures the average change in prices U.S. producers receive for the sale of their products. Since tariffs and taxes are not retained by producers as revenue, they are explicitly excluded from the PPI. However, pricing decisions producers make in reaction to tariffs are included in the PPI. For example, if a domestic producer is manufacturing a product that is subject to import competition and tariffs are placed on those imports, the domestic producer may increase its own prices in order to maximize revenue. In this case, the price increase for the domestic producer would be included in the PPI. Similarly, if a domestic producer exports products to a foreign country that placed tariffs on U.S. products and the domestic producer lowered its prices either to better compete in the export market or to sell domestically excess inventory that resulted from those tariffs, those price decreases would also be reflected in the PPI.
25. How do I know if my index has been discontinued?
When new samples are introduced, the PPI Detailed Report includes tables listing indexes which have been deleted, added, or recoded as of that release. Once an index is deleted or recoded, any published historical data for that index still will be available in the discontinued databases listed under PPI Databases. Please note that as of January 2004, the PPI discontinued the use of SIC-based industry indexes and transitioned to the NAICS (see SIC to NAICs Concordance Explanation).
26. Where can I get more information?
For additional information on PPI methodology, see the BLS Handbook of Methods, Chapter 14, Producer Price Indexes (PDF), as well as, related materials on the PPI Methodology web page. The Monthly Labor Review of the BLS occasionally includes technical and analytical articles on the PPI. Also, visit the PPI Homepage. For an explanation of how to use BLS database tools to get PPI data, link to the PPI Data Retrieval Guide. Further assistance is available by contacting the PPI Section of Index Analysis and Public Information at firstname.lastname@example.org or (202) 691-7705.
Last Modified Date: October 10, 2018