PPI Introduces Experimental Net Inputs to Industry Indexes

Notice

With the release of data for July 2014, the Producer Price Index (PPI) introduced a new set of experimental net inputs to industry indexes. In contrast to PPI net output indexes, which measure the average change in prices domestic industries receive for their output, the new industry net input indexes measure the average change in prices for domestic inputs consumed by industries, excluding inputs of capital investment, labor, and imports. The industry input indexes may be useful for data users as tools for industry level analysis, contract escalation, or to examine price transmission between input and output prices.

The experimental net input indexes were developed for four industries: automobile manufacturing; paint and coating manufacturing; offices of health practitioners (physicians, dentists, and other); and membership associations and organizations (religious, grantmaking, civic, professional, and similar). [1]


Methodology

PPI currently publishes a set of material and supply inputs to construction industries indexes that measure the average change in price for domestically produced materials and supplies consumed by construction industries. The material and supply inputs to construction industries indexes are constructed from primary product level PPI industry data. The methodology used to develop the new industry net input indexes is similar to methodology used in constructing PPI's currently published inputs to construction indexes, with two major improvements. (See page 190 of the July 1986 PPI Detailed Report for an overview of the Indexes for Material and Supply Inputs to Construction Industries methodology.) [2]

First, the new indexes are built from PPI commodity indexes, as opposed to industry indexes. Using commodity indexes to construct industry input indexes is more appropriate than using primary level industry indexes, since industries consume commodities as inputs to production. [3] Commodity indexes track price change for goods, services, or construction products regardless of the product’s industry of origin. Second, the new input indexes include services and construction inputs in addition to materials and supplies. [4]

The set of products included in an industry input index is determined from the Bureau of Economic Analysis (BEA) Use of Commodities by Industries table. This table provides, on an industry-by-industry basis, the set and dollar value of products consumed by each domestic industry as inputs to production. Weights for each commodity included in an industry input index also are derived from this data table, in conjunction with U.S. Census Bureau (Census) revenue data. The gross weight of each commodity included in an industry input index is equal to the portion of the total value of the commodity consumed by the industry multiplied by the Census revenue for that commodity. The gross weight is then converted to a net weight by removing the portion of the consumed commodity’s value that also was produced by the industry.

Finally, it should be noted that, as with PPI's Final Demand-Intermediate Demand (FD-ID) indexes and Stage of Processing (SOP) indexes, the industry input indexes are constructed from domestic producer prices as opposed to actual input prices. For this reason, buyer-borne fees and taxes paid by the buyer are not captured by the indexes.


Publication structure

For each covered industry, the publication structure for inputs to industry indexes include an aggregate index measuring price change for all inputs consumed excluding capital investment, labor, and imports. In addition, sub-indexes are published measuring price change for goods, services, and construction consumed by the industry. Final breakdowns also are published by type of good or services consumed by the industry. An example publication structure for an input to industry index follows:

  • Inputs to industry XXXXXX, excluding capital investment, labor, and imports

    • Goods inputs
      • Food
      • Energy
      • Goods excluding food and energy
    • Services inputs
      • Trade services
      • Transportation and warehousing services
      • Services less trade, transportation, and warehousing
    • Maintenance and repair construction

In cases where an industry does not consume one of the input subcategories from the list above, an index will not be published. (Relative importance values for six-digit PPI commodities included within an industry input index are available upon request.)


Availability

The experimental industry input indexes are available through the BLS database (LABSTAT) under the special indexes group of PPI Commodity Data. You may access them directly from the links in the following list:

Footnotes

[1] The decision to develop experimental input indexes for these four industries was based on data user requests and an examination of the use of PPI industry output indexes.

[2] This document is available upon request through email at ppi-info@bls.gov or by phone at 202-691-7705.

[3] PPI implemented a 0.5-percent cutoff rule for determining the set of products included in an industry input index. Products that were less that 0.5 percent of the total inputs to the industry were excluded from the index. The 0.5-percent cutoff significantly reduces the work of building and maintaining the industry input indexes, and analysis has shown, the truncated inputs have almost no effect on index movements. PPI uses a similar 0.5-percent cutoff to construct the Final Demand-Intermediate Demand indexes.

[4] Based on the results of the experimental release of the input to industry indexes, PPI may update the methodology used to develop the currently published Material and Supply Inputs to Construction Industries indexes. Updates to the methodology would likely include constructing the indexes from commodity, as opposed to industry, data and the addition of services and construction inputs.


Tell us what you think

With the release of the inputs to industry price indexes on an experimental basis, PPI is soliciting your feedback. Please direct any comments or questions to ppi-input@bls.gov, or Jayson Pollock at 202-691-5085, or Jonathan Weinhagen at 202-691-7709.


 

Last Modified Date: August 15, 2014