The Producer Price Index (PPI) is a family of indexes that measures the average change over time in 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. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs.
There are three main PPI classification structures which draw from the same pool of price information provided to the BLS by cooperating company reporters:
- Industry classification. A Producer Price Index for an industry is a measure of changes in prices received for the industry's output sold outside the industry (that is, its net output). The PPI publishes approximately 535 industry price indexes in combination with over 4,000 specific product line and product category sub-indexes, as well as, roughly 500 indexes for groupings of industries. North American Industry Classification System (NAICS) index codes provide comparability with a wide assortment of industry-based data for other economic programs, including productivity, production, employment, wages, and earnings.
- Commodity classification. The commodity classification structure of the PPI organizes products and services by similarity or material composition, regardless of the industry classification of the producing establishment. This system is unique to the PPI and does not match any other standard coding structure. In all, PPI publishes more than 3,700 commodity price indexes for goods and about 800 for services (seasonally adjusted and not seasonally adjusted), organized by product, service, and end use.
- Commodity-based Final Demand-Intermediate Demand (FD-ID) System. Commodity-based FD-ID price indexes regroup commodity indexes for goods, services, and construction at the subproduct class (six-digit) level, according to the type of buyer and the amount of physical processing or assembling the products have undergone. The PPI publishes over 600 FD-ID indexes (seasonally adjusted and not seasonally adjusted) measuring price change for goods, services, and construction sold to final demand and to intermediate demand. The FD-ID system replaced the PPI stage-of-processing (SOP) system as PPI's primary aggregation model with the release of data for January 2014. The FD-ID system expands coverage in its aggregate measures beyond that of the SOP system by incorporating indexes for services, construction, exports, and government purchases.
Other publication structures include:
- Producer price indexes by durability of product.
- Special commodity groupings indexes (e.g. fabricated metal products and textile mill products).
- Material inputs to construction industry indexes.
- 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. Data includes industries in the following sectors: wholesale and retail trade; transportation and warehousing; information; finance and insurance; real estate brokering, rental, and leasing; professional, scientific, and technical services; administrative, support, and waste management services; health care and social assistance; and accommodation.
- The PPI sample includes over 25,000 establishments providing approximately 100,000 price quotations per month for products specified through a process called disaggregation.
- Establishments are selected for the PPI survey via systematic sampling of a list of all firms in the industry.
- Participation by firms is completely voluntary.
- Participating establishments report price data through mail or fax.
- Goods and services included in the PPI are weighted by value-of-shipments data contained in the 2007 economic censuses.
- Industries and products undergo systematic resampling as needed, to account for changing market conditions.
- For most items, establishments report product selling prices for the Tuesday of the week containing the 13th of each month.
Producer Price Indexes are usually made available during the second full week of the month following the reference date. Data is posted shortly after 8:30am on dates as announced in the online release calendar.
- The monthly PPI News Release 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.
- The PPI Detailed Report is the most comprehensive 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.
- Occasional technical and analytical articles on the PPI, are published in the BLS Monthly Labor Review.
- Periodic PPI data analysis, along with a short informative article, are published in the quarterly BLS Beyond the Numbers.
- Electronic access to current and discontinued historical PPI data is available through the BLS LABSTAT databases in html, text, and Excel format.
- Contract escalation. PPI data are commonly used in escalating 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 escalation clause that accounts for changes in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. (See PPI Escalation Guide for Contracting Parties.)
- Indicator of overall price movement at the producer level. PPIs capture price movement prior to the retail level. Therefore, they may foreshadow subsequent price changes for business and consumers. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies.
- Deflator of other economic series. PPIs are used to adjust other 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 the PPI.
- Measure of price movement for particular industries and products.
- Comparison of input and output costs.
- Comparison of industry-based price data to other industry-oriented economic time series.
- LIFO (i.e., last-in, first-out) inventory valuation.
Research in progress
- Services sector coverage expansion.
For additional information on PPI methodology, see the BLS Handbook of Methods, Chapter 14, Producer Price Indexes (HTML) (PDF). Further assistance is available by contacting the PPI Section of Index Analysis and Public Information at email@example.com or (202) 691-7705.
Last Modified Date: February 13, 2014