December 2011 Producer Price Index

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The Producer Price Index for finished goods declined 0.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods moved up 0.3 percent in November and fell 0.3 percent in October. At the earlier stages of processing, the index for intermediate goods decreased 0.5 percent in December, and crude goods prices moved down 1.1 percent. On an unadjusted basis, the index for finished goods increased 4.8 percent in 2011 after rising 3.8 percent in 2010. (See table A.)

Stage-of-Processing Analysis

Finished goods

The December decline in finished goods prices is attributable to decreases of 0.8 percent in the indexes for finished energy goods and finished consumer foods. By contrast, prices for finished goods less foods and energy increased 0.3 percent.

Finished energy: The index for finished energy goods fell 0.8 percent in December after inching up 0.1 percent in November. Leading this decline, gasoline prices dropped 2.3 percent. Lower prices for residential natural gas and diesel fuel also were factors in the decrease in the finished energy goods index. (See table 2.)

Finished foods: Prices for finished consumer foods moved down 0.8 percent in December, the first decline since a 1.2-percent drop in May 2011. Seventy percent of the December decrease can be traced to the index for fresh and dry vegetables, which fell 11.1 percent. Lower prices for pork also contributed to the decline in the finished consumer foods index.

Finished core: The index for finished goods less foods and energy rose 0.3 percent in December, the largest advance since a 0.6-percent increase in July 2011. Roughly thirty percent of the December rise is attributable to prices for light motor trucks, which moved up 0.9 percent.

Intermediate goods

The Producer Price Index for intermediate materials, supplies, and components fell 0.5 percent in December after rising 0.2 percent in November. Accounting for three-quarters of this broad- based decline, the index for intermediate materials less foods and energy decreased 0.5 percent. Prices for intermediate energy goods and for intermediate foods and feeds moved down 0.3 percent and 0.6 percent, respectively. In 2011, prices for intermediate goods rose 6.1 percent after increasing 6.3 percent in 2010. (See table B.)

Intermediate core: The index for intermediate materials less foods and energy moved down 0.5 percent in December, the third consecutive decline. About two-thirds of the December decrease can be attributed to a 4.0-percent drop in prices for basic organic chemicals. The indexes for thermoplastic resins and plastics materials and for nonferrous mill shapes also contributed to the decline in intermediate core prices. (See table 2.)

Intermediate energy: Prices for intermediate energy goods moved down 0.3 percent in December after rising 1.9 percent a month earlier. A major factor in this decline was the index for diesel fuel, which fell 3.8 percent. Lower gasoline prices also contributed significantly to the decrease in the intermediate energy goods index.

Intermediate foods: Prices for intermediate foods and feeds moved down 0.6 percent in December following a 0.6-percent advance in November. Accounting for nearly half of the decrease, the index for prepared animal feeds fell 2.2 percent.

Crude goods

The Producer Price Index for crude materials for further processing decreased 1.1 percent in December. For the 3 months ending in December, prices inched up 0.1 percent following a 1.8- percent rise from June to September. The December monthly decline is mostly attributable to the index for crude foodstuffs and feedstuffs, which fell 2.6 percent. Prices for crude energy materials edged down 0.1 percent and the index for crude nonfood materials less energy was unchanged.

Crude foods: The index for crude foodstuffs and feedstuffs dropped 2.6 percent in December. From September to December, crude foods prices decreased 3.8 percent subsequent to a 2.9- percent advance in the previous 3-month period. Accounting for over half of the December monthly decline, the index for corn fell 11.4 percent. Lower prices for slaughter steers and heifers and for slaughter hogs also were significant factors in the decline in the crude foods index. (See table 2.)

Crude energy: Prices for crude energy materials inched down 0.1 percent in December. For the 3 months ending in December, the crude energy materials index increased 8.0 percent after falling 0.3 percent from June to September. The December monthly decrease was the result of a 4.6-percent drop in natural gas prices.

Crude core: The index for crude nonfood materials less energy was unchanged in December. In the fourth quarter, the crude core index declined 6.7 percent compared with a 3.0-percent advance from June to September. In December, higher prices for iron and steel scrap and for corrugated wastepaper offset declining prices for nonferrous metals and corn.

Services Analysis

Trade industries: The Producer Price Index for the net output of total trade industries moved up 0.2 percent in December after no change in November. (Trade indexes measure changes in margins received by wholesalers and retailers.) Leading the December advance were margins received by merchant wholesalers of durable goods, which climbed 1.4 percent. Higher margins received by discount department stores and by automotive parts and accessories stores also were factors in the rise in the total trade industries index. In 2011, the total trade industries index rose 3.4 percent.

Transportation and warehousing industries: The Producer Price Index for the net output of transportation and warehousing industries moved up 0.6 percent in December following a 0.2- percent decline in November. Over seventy percent of this rise can be traced to prices received by the scheduled passenger air transportation industry, which climbed 2.7 percent. Higher prices received by the industries for long-distance general freight trucking (truckload) and local general freight trucking also contributed to the increase in the transportation and warehousing industries index. In 2011, the transportation and warehousing industries index moved up 6.1 percent.

Traditional service industries: The Producer Price Index for the net output of total traditional service industries edged down 0.1 percent in December following a 0.1-percent advance in November. The index for the commercial banking industry led the December decrease, falling 0.9 percent. Lower prices received by the industries for non-casino hotels and motels and for passenger car rental also were factors in the decline in the total traditional service industries index. In 2011, the total traditional service industries index increased 1.9 percent.

Recalculated Seasonal Adjustment Factors and Relative Importance Figures to be Available on February 14, 2012

Each year with the release of PPI data for January, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. The following information will be available on February 14, 2012 (two workdays prior to the release of PPI data for January 2012 on February 16):

* Direct seasonal factors for commodity indexes for the year 2012,

* Recalculated seasonal factors for the last 5 years (2007-2011) for the commodity indexes,

* Recalculated seasonal factors for the last 5 years (2007-2011) for the stage-of-processing indexes.

This routine annual calculation may result in revisions to seasonally adjusted indexes for the previous 5 years, which will be available on the BLS website. In addition, December 2011 relative importance figures will be available on February 14, 2012.

To obtain this information, visit the PPI website at www.bls.gov/ppi or call the Division of Industrial Prices and Price Indexes, Section of Index Analysis and Public Information at (202) 691-7705.

PPI Weights to be Updated

The Bureau of Labor Statistics will soon update the value weights used to calculate Producer Price Indexes to more accurately reflect recent production and marketing patterns. The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007.

All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100.

The basic structures of the PPI commodity and stage-of-processing classification systems will not change as a result of the weight revision. The PPIs classified according to the North American Industry Classification System (NAICS), however, will be updated in February 2012 with the release of January 2012 index data to reflect 2012 NAICS definitions established by the U.S. Census Bureau. The weight update will also result in significant shifts in the relative importance of various industries and products. These shifts will impact aggregate indexes in a manner commensurate with the relative gains and losses in value weights from 2002 to 2007.

Commodity and stage-of-processing relative importance figures for December 2011 will be available on February 14, 2012, two business days prior to the release of January 2012 PPI data. This information will be available on the PPI website at www.bls.gov/ppi or by calling the Division of Industrial Prices and Price Indexes, Section of Index Analysis and Public Information at (202) 691-7705.