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July 1996, Vol. 119, No. 7
Effective with the release of data for January 1996, the weights used to construct the Producer Price Index (PPI) were updated to reflect the 1992 values of shipments of commodities. From 1992 through 1995, weights were based on 1987 values of shipments. The PPI is constructed by obtaining the prices, each month, of a set of goods representative of the marketed output of domestic industries in some designated base period. Although the weights of items included in the PPI change continuously solely in response to different rates of price change among the various items, production patterns are influenced by factors other than price changes, such as technological advancement and changes in demand. It is therefore necessary periodically to restore the representativeness of the mix of goods that go into making up the PPI to the current mix of domestic outputs by comprehensively recomputing the weights of PPI items based on the value of shipments in a more recent period.
Weights for specific products are based on their value of shipments, as measured by the Census of Manufactures, Census of Mining, Census of Services, and Census of Agriculture.1 For overall groupings of products, relative importance figures are calculated by aggregating specific product weights together, resulting in a weighted average of the components.
The 1996 weight revision affected all series within the Producer Price Index, including traditional commodity code indexes, industry net output indexes, stage-of-processing indexes based on both the commodity and the net output classification system, durability-of-product indexes, and special commodity groupings. The proportional allocation of commodity series to specific stage-of-processing categories remains based on 1972 input-output data.
This excerpt is from an article published in the July 1996 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 For a detailed analysis of the concepts underlying PPI weights, see BLS Handbook of Methods, Bulletin 2414 (Bureau of Labor Statistics, September 1992), Chapter 16,"Producer Prices".
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