Nov 2 -- The Bureau of Labor Statistics (BLS) invites comments by January 2, 2024 regarding the extension of the Producer Price Index (PPI) Survey to 2027.
The Producer Price Index (PPI) is a Principal Federal Economic Indicator consisting of 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. The PPI data are widely used by the business community as well as by government and academia. In particular, the data are used as an economic indicator playing a crucial role in market analysis, as a deflator of other economic series, the basis for the calculation of price adjustments for contracts and purchase agreements, and as an input to economic research. These uses highlight the necessity of the PPI in order to understand the economy.
PPI data meets a wide range of government needs by providing a description of the magnitude and composition of price changes within the economy. Government agencies view these indexes as sensitive indicators of the economic environment and closely follow each monthly release of statistics. PPI data are vital in helping the President and Congress set fiscal spending targets. The Federal Reserve Board Open Market Committee monitors producer prices to help determine monetary policy. Federal policy makers at the Department of the Treasury and the Council of Economic Advisors utilize these statistics to help interpret the economic environment and make decisions based upon these interpretations. Many dollar-denominated measurements of economic performance, such as the Gross Domestic Product (GDP), require accurate price data for the conversion of nominal dollars into real dollars. National income accounting figures must also be inflation free in order to remain relevant to fiscal and monetary policy makers setting objectives. Price adjustment clauses in government purchasing contracts commonly use one or more PPIs. According to a conservative estimate, hundreds-of-billions of dollars' worth of contracts and purchase agreements employ PPIs as part of price adjustment clauses. Failure to calculate these price data would prolong the time frame needed for accurate recognition of and appropriate adaptation to economic events.
The private sector also makes extensive use of PPI data. Researchers commonly use producer prices to probe and measure the interaction of market forces. Private firms use PPIs for contract escalation and price adjustment. The Internal Revenue Service (IRS) recommends using PPI data for certain kinds of tax related inventory accounting, such as Last-In-First-Out (LIFO). Private businesses extensively use PPIs for planning and operations. Firms often compare the prices they pay and receive with changes in appropriate PPIs.
Economic researchers and forecasters also put PPIs to regular use. They use PPI data to better understand market forces. Research topics requiring producer price data include studying elasticities, potential lead and lag structures within price changes, and the identification of prices that cause major influence throughout the economy. Policy-makers, businesses, and researchers all require complete descriptions of price change trends if they are to perform effectively.
Office of Management and Budget clearance is being sought for the extension of the PPI survey. The PPI collection is not a one-time project with an end date. The purpose of the PPI collection is to accumulate data for the ongoing, monthly publication of the PPI family of indexes. The Bureau of Labor Statistics must continue collecting data for the PPI since both policy and business planning benefit from accurate, timely, and relevant description of price trends. Legislators and government agencies use the PPI to assist them with developing policy and evaluating the markets. Dollar-denominated measures of economic performance, such as Gross Domestic Product, require accurate price data in order to convert nominal to constant-dollar values. Inflation-free national income accounting figures are vital to fiscal and monetary policy-makers when setting objectives and targets. The price adjustment clauses of purchase agreements use monthly PPIs. It is conservatively estimated that hundreds-of-billions of dollars' worth of contracts and purchase agreements employ PPIs as part of price-adjustment clauses. Failure to provide current accurate monthly statistics would necessitate more complex clauses in contracts and prolong the time required to determine price changes for purposes of contract adjustments.
The expansive coverage of PPIs makes them very valuable to the users described above as well as many others. The PPI program tabulates and publishes price indexes for within-industry product lines, 6-digit NAICS industry classifications, and higher-level aggregate indexes for the mining and manufacturing sectors, as well as the services sector. The PPI currently publishes NAICS indexes for approximately 364 mining and manufacturing industries. The PPI coverage of the non-goods-producing sectors includes 145 NAICS industries covering 136 services, and 9 construction. PPI also publishes commodity-based indexes encompassing agriculture, forestry, mining, manufacturing, services, and construction. There is a third PPI structure of indexes for the flow of production called the Final Demand-Intermediate Demand (FD-ID) aggregation system. Finally, PPI publishes a set of indexes that measure price change for inputs consumed by selected industries. There are also other special-use indexes, including some for regional detail. The PPI program uses one set of micro-data it collects to generate all its outputs. The format and content of these data are shown in the program’s monthly publication titled PPI Detailed Report, found at https://www.bls.gov/ppi/tables/
In fiscal year 2020, PPI and BLS’s Import Price Index (MPI), introduced a satellite set of net inputs to industry price indexes. These new indexes measure price change for both domestically produced and imported inputs consumed by most 3-digit NAICS industry groupings, excluding capital investment and labor. The new satellite series are complimentary to official indexes and are produced and published separately from the existing official PPI inputs to industry series. The new data series improves upon the existing net inputs to industry price indexes by adding prices for imported inputs of goods. The satellite series also represents a major coverage expansion relative to the official input price indexes, which are only available for construction industries and a very limited number of mining, manufacturing, and services industries. The new data provide business users with additional data options for industry cost analysis, price transmission analysis, contract escalation, and deflation of revenue streams, removing the effects of price changes and converting nominal revenue into real revenue. Each month beginning with the initial data release, PPI and MPI post an Excel file on a new web page with data for the current period and revised data for the four months prior. Data in the table are published at the third decimal place level of precision.
The PPI program is also increasing its use of non-traditionally collected data to mitigate respondent burden, address a decrease in collected prices, and to supplement indexes such that PPI published indexes continue to meet publication criteria. For example, beginning in 2018 PPI began using a large, purchased database for financial services within the U.S. economy. PPI is using this source to replace directly-collected data for municipal debt securities dealing, corporate debt securities dealing, and equities securities dealing in the investment banking and securities dealing industry. In 2022, PPI used non-traditionally collected data sources to expand coverage to include pipeline transportation of natural gas and feeder and replacement cattle. In 2023, PPI partially replaced traditionally collected data for coal with non-traditionally collected data. The PPI program continues to look for opportunities to increase its use of secondary source data, but at the current time there is not a widespread availability of data that include the necessary inputs for estimating the change in prices that producers receive for the goods they produce and the services they provide.
PPI continually looks to refine its data collection procedures to reduce respondent burden. In fiscal year 2021, PPI initiated a pilot effort to bypass the initiation process of selecting items and disaggregation and simply to request a respondent-provided dataset of price information for the category. The pilot was successfully completed and several respondents from the pilot are now providing PPI with large data sets monthly. Based on this pilot, PPI is currently developing standard procedures to collect respondent-provided datasets of price information data for predesignated survey units in selected industries. In 2023, PPI implemented a new policy to reduce respondent burden during the initiation interview. This new policy simplifies the disaggregation process implemented by field economists to select items for monthly repricing during the initiation interview.
Draft data collection instruments and technical documentation: https://www.dropbox.com/scl/fo/inkpid3gyavqd2nlqa8a4/h?rlkey=jmcipoa0r6iefqup57rav1k99&dl=0