December 2014 Producer Price Index

Historical release narrative reproduced from the official public-domain source. Statistical tables, standard technical appendices, administrative material and attendance rosters are omitted; formatting is adapted for reading. Figures retain the release's historical context and may have been revised. Consult the linked source for the complete document.

The Producer Price Index for final demand fell 0.3 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices decreased 0.2 percent in November and advanced 0.2 percent in October. On an unadjusted basis, the index for final demand increased 1.1 percent in 2014 after rising 1.2 percent in 2013. (See table A.)

In December, the 0.3-percent decline in the final demand index can be traced to a 1.2-percent drop in prices for final demand goods. In contrast, the index for final demand services moved up 0.2 percent.

Within intermediate demand, prices for processed goods fell 1.7 percent, the index for unprocessed goods moved down 5.0 percent, and prices for services were unchanged. (See tables B and C.)

Final Demand

(Final demand includes goods, services, and construction which are sold for personal consumption, capital investment, government purchases, and export. See table 4 for product detail.)

Final demand goods: The index for final demand goods dropped 1.2 percent in December, the sixth consecutive decrease. Leading the December decline, prices for final demand energy fell 6.6 percent. The index for final demand foods moved down 0.4 percent. Conversely, prices for final demand goods less foods and energy increased 0.2 percent.

Product detail: Over 70 percent of the December decrease in the index for final demand goods is attributable to prices for gasoline, which fell 14.5 percent. The indexes for diesel fuel, liquefied petroleum gas, home heating oil, meats, and primary basic organic chemicals also moved lower. In contrast, motor vehicle prices rose 0.6 percent. The indexes for residential natural gas and chicken eggs also advanced. (See table 4.)

Final demand services: The index for final demand services increased 0.2 percent in December after inching up 0.1 percent in November. Over three-fourths of the December rise can be traced to margins for final demand trade services, which climbed 0.6 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing advanced 0.2 percent. Conversely, the index for final demand transportation and warehousing services edged down 0.1 percent.

Product detail: Leading the December rise in prices for final demand services, margins for fuels and lubricants retailing jumped 24.7 percent. The indexes for securities brokerage, dealing, investment advice, and related services; apparel, jewelry, footwear, and accessories retailing; outpatient care (partial); food and alcohol retailing; and portfolio management also moved higher. In contrast, prices for loan services (partial) fell 3.6 percent. The indexes for hospital inpatient care and for health, beauty, and optical goods retailing also declined.

Special grouping, Final demand less foods, energy, and trade: The index for final demand less foods, energy, and trade services inched up 0.1 percent in December after no change in November. For the 12 months ended in December, prices for final demand less foods, energy, and trade services advanced 1.3 percent. (The index for final demand less foods, energy, and trade services represents about two-thirds of final demand.)

Special grouping, Finished goods: Prices for finished goods fell 1.2 percent in December, the largest decrease since a 1.2-percent drop in July 2009. (The finished goods index represents about two-thirds of final demand goods, through the exclusion of the weight for government purchases and exports. The finished goods index represents about one-quarter of overall final demand.) Leading the December decline, prices for finished consumer energy goods decreased 6.1 percent. The index for finished consumer foods moved down 0.4 percent. Conversely, prices for finished goods less foods and energy increased 0.3 percent. Within finished goods, falling prices for gasoline, liquefied petroleum gas, home heating oil, diesel fuel, meats, and electronic computers outweighed advances in the indexes for motor vehicles, eggs for fresh use, and residential natural gas.

Intermediate Demand

(Intermediate demand includes goods, services, and maintenance and repair construction sold to businesses, excluding capital investment. BLS publishes two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model. See the technical note for more information.)

Intermediate Demand by Commodity Type

Processed goods for intermediate demand: The index for processed goods for intermediate demand moved down 1.7 percent in December, the largest decrease since a 4.1-percent drop in December 2008. Over 70 percent of the broad-based decline in December 2014 was the result of prices for processed energy goods, which fell 5.7 percent. The indexes for processed materials less foods and energy and for processed foods and feeds moved down 0.6 percent and 0.8 percent, respectively. The index for processed goods for intermediate demand fell 2.2 percent in 2014 after inching up 0.1 percent in 2013. (See table B.)

Product detail: In December, a major contributor to the decline in the index for processed goods for intermediate demand was the index for diesel fuel, which decreased 12.2 percent. Prices also fell for gasoline, primary basic organic chemicals, lubricating oil base stocks, jet fuel, and natural cheese (except cottage cheese). In contrast, the index for ethanol jumped 23.1 percent. Prices for utility natural gas and industrial electric power also moved up in December. (See table 5.)

Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand fell 5.0 percent in December, the largest drop since a 5.6-percent decrease in February 2009. Accounting for over 60 percent of the broad-based decline in December, the index for unprocessed foodstuffs and feedstuffs dropped 6.9 percent. The indexes for unprocessed energy materials and unprocessed nonfood materials less energy moved down 4.7 percent and 0.5 percent, respectively. The index for unprocessed goods for intermediate demand fell 8.1 percent in 2014 after declining 1.9 percent in 2013.

Product detail: A major factor in the December drop in the index for unprocessed goods for intermediate demand was prices for slaughter livestock, which fell 10.9 percent. The indexes for crude petroleum, raw milk, slaughter poultry, carbon steel scrap, and coal also moved lower. Conversely, prices for natural gas jumped 19.7 percent in December. The indexes for corn and ungraded chicken eggs also moved higher.

Services for intermediate demand: The index for services for intermediate demand was unchanged in December after rising 0.3 percent in November. In December, a 0.3-percent increase in the index for trade services for intermediate demand offset a 0.1-percent decline in prices for services less trade, transportation, and warehousing for intermediate demand. The index for transportation and warehousing services for intermediate demand was unchanged. Prices for services for intermediate demand moved up 1.7 percent in 2014 after rising 1.0 percent in 2013. (See table C.)

Product detail: In December, among the indexes within services for intermediate demand, margins for parts and supplies for machinery and equipment wholesaling advanced 2.3 percent. The indexes for securities brokerage, dealing, investment advice, and related services; fuels and lubricants retailing; portfolio management; and staffing services also increased. In contrast, prices for business loans (partial) fell 5.6 percent. The indexes for broadcast and network television advertising time sales; metals, minerals, and ores wholesaling; passenger car rental; and air package delivery services (excluding USPS) also decreased.

Intermediate Demand by Production Flow

Stage 4 intermediate demand (The stage 4 intermediate demand index measures price changes for products purchased by industries that primarily produce output sold to final demand.): The index for stage 4 intermediate demand moved down 0.4 percent in December, the largest decrease since a 0.4-percent decline in March 2013. In December, prices for total goods inputs to stage 4 intermediate demand fell 1.1 percent. Conversely, the index for total services inputs moved up 0.4 percent. (See table D.) Lower prices for gasoline, diesel fuel, business loans (partial), jet fuel, natural cheese (except cottage cheese), and meats outweighed increases in the indexes for securities brokerage, dealing, investment advice, and related services; parts and supplies for machinery and equipment wholesaling; and corn. (See table 6.) In 2014, prices for stage 4 intermediate demand advanced 0.5 percent after increasing 0.8 percent in 2013.

Stage 3 intermediate demand (The stage 3 intermediate demand index measures price changes for products purchased by industries that primarily produce output sold to industries classified in stage 4.): Prices for stage 3 intermediate demand moved down 2.1 percent in December, the largest decrease since its inception in December 2009. In December, the index for total goods inputs to stage 3 intermediate demand fell 3.6 percent, and prices for total services inputs declined 0.2 percent. Lower prices for slaughter livestock, gasoline, raw milk, slaughter poultry, diesel fuel, and business loans (partial) outweighed advances in the indexes for natural gas, fuels and lubricants retailing, and ungraded chicken eggs. In 2014, the index for stage 3 intermediate demand moved up 0.4 percent after advancing 0.5 percent in 2013.

Stage 2 intermediate demand (The stage 2 intermediate demand index measures price changes for products purchased by industries that primarily produce output sold to industries classified in stage 3.): The index for stage 2 intermediate demand decreased 1.9 percent in December, the sixth straight decline. In December, prices for total goods inputs to stage 2 intermediate demand moved down 3.1 percent, and the index for total services inputs declined 0.4 percent. Lower prices for crude petroleum, primary basic organic chemicals, liquefied petroleum gas, business loans (partial), broadcast and network television advertising time sales, and diesel fuel outweighed increases in the indexes for natural gas; ethanol; and securities brokerage, dealing, investment advice, and related services. In 2014, the index for stage 2 intermediate demand fell 5.7 percent after declining 0.2 percent in 2013.

Stage 1 intermediate demand (The stage 1 intermediate demand index measures price changes for products purchased by industries that primarily produce output sold to industries classified in stage 2.): Prices for stage 1 intermediate demand moved down 1.5 percent in December, the largest decrease since a 1.8-percent decline in June 2012. In December, the index for total goods inputs to stage 1 intermediate demand fell 3.2 percent. In contrast, the index for total services inputs moved up 0.7 percent. Falling prices for primary basic organic chemicals, gasoline, diesel fuel, lubricating oil base stocks, carbon steel scrap, and guestroom rental outweighed advances in the indexes for securities brokerage, dealing, investment advice, and related services; electric power; and portfolio management. In 2014, prices for stage 1 intermediate demand moved down 2.0 percent after increasing 0.2 percent in 2013.

PPI Updates Commodity Weight Allocations for the Final Demand-Intermediate Demand Aggregation Structure

Effective with the release of data for January 2015 on February 18, 2015, the Bureau of Labor Statistics will update the weight allocations used to calculate the Producer Price Index (PPI) Final Demand-Intermediate Demand (FD-ID) indexes to more accurately reflect recent sales patterns. While PPI commodity index weights will continue to be based on shipment values from the 2007 economic census, the proportions of these weights allocated to the various FD-ID categories will change. The new allocations will be based primarily on data from the 2007 Input- Output Accounts produced by the Bureau of Economic Analysis.

It is important to note that the allocation update will not change the PPI commodity classification system, reference base, the FD-ID aggregation structure, or historical index data. It may, however, result in significant shifts in the relative importance figures of commodity components that make up the FD-ID indexes.

Relative importance figures as of December 2014, which will detail this shift from 2002 to 2007 input-output relationships, will be available on February 13, 2015 on the BLS website at www.bls.gov/ppi. This information also may be requested from the Division of Industrial Prices and Price Indexes, Section of Index Analysis and Public Information through e-mail to ppi- info@bls.gov or by calling (202) 691-7705. For further information on this update, contact Jonathan Weinhagen at weinhagen.jonathan@bls.gov or (202) 691-7709.

Recalculated Seasonal Adjustment Factors and Relative Importance Figures to be Available on February 13, 2015

Each year with the release of PPI data for January, seasonal adjustment factors and relative importance figures are recalculated to reflect price movements from the just-completed calendar year. The following seasonal information will be available on February 13, 2015 (2 workdays prior to the release of PPI data for January 2015 on February 18):

* Direct seasonal factors for PPI commodity indexes for the year 2015, * Recalculated seasonal factors for the last 5 years (2010-2014) for PPI commodity indexes, * Recalculated seasonal factors for the last 5 years (2010-2014) for PPI Final Demand- Intermediate Demand indexes, * Recalculated seasonal data for the last 5 years (2010-2014) for Final Demand-Intermediate Demand and commodity indexes. This revision to seasonally adjusted indexes for the previous 5 years will be posted to the PPI database on the BLS website.

In addition, the following relative importance tables as of December 2014 also will be available on February 13, 2015:

* Final demand by individual commodities * Final demand by component series * Individual commodities of intermediate demand by commodity type * Component series of intermediate demand by commodity type * Individual commodities of intermediate demand by production flow * Component series of intermediate demand by production flow * Commodities, all levels * Wherever-provided services and construction

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