Current Price Topics

What Does the 

Producer Price Index

Measure?

1

Producer Price Index: Third Quarter 2010

U.S. Bureau of Labor Statistics November 2010 Volume 1, Number 9

The Producer Price Index (PPI) measures 

average changes in prices received by 

domestic producers for the sale of their 

output. While this carefully worded definition 

reveals everything needed to answer the 

question, this report breaks down the official 

definition of the PPI to clear up common 

misconceptions about prices, production, and 

price pass-though within the of PPI.

Prices received

Except in the case of trade industry indexes, PPI 

defines “price” as the net revenue accruing to the 

producing establishment, from the buyer, for a 

specific product shipped or service provided, 

under specific transaction terms, on a specific 

day of the month. Wholesale and retail trade 

establishments are engaged in purchasing and 

reselling goods. Since little, if any, transformation 

of the goods takes place, trade industries are 

viewed as suppliers of services, for which the PPI 

seeks to measure the value their services add 

to the completed products. The PPI measures 

this added value as trade industries’ margin, 

where the margin is the amount the selling price 

exceeds the acquisition price of the goods.

Since the PPI generally measures the change 

in revenue received for shipped products 

and delivered services, it is an output index; 

therefore, it will not necessarily reflect changes 

in the cost of materials, labor, equipment, or 

any other input cost associated with generating 

output except in the sense that producers 

consider these factors when they set their 

selling prices. Transportation costs are included 

only when the seller delivers the product 

without hiring a third-party shipper. In many 

cases, the price received by the manufacturer 

or service provider is the same as the selling 

price. However, excise taxes, which may be 

included in the price charged to the buyer, but 

collected on behalf of the government, are 

not considered part of the PPI price. Changes 

in sales promotions affect the PPI when they 

influence the proceeds ultimately realized by 

the manufacturer, such as in manufacturers’ 

rebate programs.

The PPI strives to capture price data for output 

shipped in the same month as that in which 

the transaction takes place. For the purpose of 

data collection, the day of the month for which 

PPI regularly requests price information is the 

Tuesday of the week containing the 13th of the 

month. Though some prices are those quoted 

on organized commodity exchanges or central 

markets, the vast majority of price quotations 

used to compose PPIs are reported to the 

Bureau of Labor Statistics (BLS) by a probabilitybased sample of producers.

Domestic production

The PPI tracks price changes for practically the 

entire output of the mining and manufacturing 
2

 C U R R E N T P R I C E T O P I C S

sectors of the United States economy. As of 

January 2010, the PPI sample also tracked more 

than three quarters of the services sector in 

the United States, with efforts underway for 

further expansion. Coverage of the utility and 

construction sectors is limited.

Products in the PPI are organized using two 

main classification structures. The industrybased structure lists products and services by 

the industry in which each is a primary revenue 

source. Conversely, the commodity structure lists 

products and services by similarity of end use or 

material composition, regardless of the industry 

classification of the producing establishment. 

Ultimately, both structures draw from the same 

set of prices and contain indexes for all products 

and many services in the PPI survey.1

The PPI only tracks prices for goods and services 

produced in the United States. Therefore, if 

a product or service is not manufactured or 

provided by a domestically located producer, 

a PPI for that good or service will not exist. 

Another reason for the unavailability of data for 

a given product is that the number of domesticproducing establishments may be too low. If 

an index for such a product were published, 

the identity of manufacturers in the sample 

could be discernable. Since prices for PPIs are 

considered proprietary information and are 

reported on a voluntary basis, great care is taken 

to protect the identity of survey respondents.

Input costs...output prices

Usually, changes in PPIs for material inputs 

to a particular product or service are more 

volatile and precede changes in the index 

for the corresponding output, since sellers 

must manage buyer expectations about price. 

This pattern typically reflects what actually is 

occurring with prices charged to buyers from 

month to month, thereby making PPIs a useful 

price measurement tool for various research, 

policymaking, and business purposes.

More information on the PPI can be found in 

the BLS Handbook of Methods, Chapter 14, 

Producer Price Indexes. Further information 

is also available from the PPI Section of 

Index Analysis and Public Information, at 

ppi-info@bls.gov or (202) 691-7705.

The PPI for Finished Goods increased 1.0 

percent in the third quarter of 2010 after 

declining 0.8 percent in the second quarter. 

This upturn can be traced to rising prices for 

finished energy goods, which advanced 1.8 

percent for the 3 months ended in September, 

following a 2.5-percent decrease in the 

prior quarter, and an increase in the finished 

consumer foods index, which moved up 

1.6 percent after falling 3.0 percent for the 

3-month period ended in June. For the third 

straight quarter, prices for finished goods 

other than foods and energy edged up 0.5 

percent. (See chart 1.) At the earlier stages 

of processing, the intermediate goods index

rose at a slightly faster rate for the 3 months 

Current Price Trends

Third Quarter 2010

Producer Inflation 

Led by Shifting Energy

and Food Prices
3

ended in September than it had in the 

preceding quarter, as an upturn in prices for 

energy goods and larger increases in prices 

for foods and feeds outweighed a downturn 

in the index for goods other than foods and 

energy. (See chart 2.) The crude goods index 

rose in the third quarter after declining in the 

3-month period ended in June, led by a strong 

reversal in prices for crude foodstuffs and 

feedstuffs.

2

 (See chart 3.)

In the energy sector, higher prices in 

the third quarter for refined petroleum

products, after steep declines in the second 

quarter, led the shift in producer prices. 

After increasing to a level of over 10.1 

million barrels per day by mid-June, crude 

petroleum imports fell to 9.0 million barrels 

per day by mid-September.3 Domestic 

field production of crude oil, at around 5.5 

million barrels per day, as well as domestic 

production and imports of gasoline, 

remained relatively steady over the same 

period.4

In the food sector, a weak forecast for the 

2010 corn crop resulted in steep gains in corn

prices. Total production for the 2010 growing 

season, compared with 2009, is expected 

to fall 3.4 percent to 12.7 billion bushels.5 In 

the United States, wheat and oilseed crop 

production is expected to be little changed 

compared with last year; however, worldwide 

wheat production is anticipated to decrease 

1.6 percent in 2010.6 Similar to corn prices, 

the indexes for wheat and oilseeds climbed 

at steep rates in the third quarter after falling 

in the prior quarter. In response, prices for 

prepared animal feeds and for cereal and 

bakery products also turned up from June to 

September. Prices for slaughter livestock, as well 

as pork products and processed young chickens, 

have been affected by both higher feed prices 

and lower meat and poultry supplies.7

 C U R R E N T P R I C E T R E N D S

-0.8

-3.0

-2.5

0.5

1.0

1.6 1.8

0.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

Overall Food Energy Core

Percent change

Mar 10–Jun 10 Jun 10–Sep 10

SOURCE: U.S. Bureau of Labor Statistics

Chart 1. Three-month percent change in PPI for overall, food, energy, and core 

finished goods, seasonally adjusted, 2010
4

Finished goods

The PPI for Finished Goods increased 1.0 

percent from June 2010 to September 2010 

after declining 0.8 percent from March to 

June. This reversal can be traced—in nearly 

equal proportions—to upturns in prices for 

finished energy goods and finished consumer 

foods. Prices for finished goods other than 

foods and energy advanced at the same rate 

as in the prior quarter, 0.5 percent.

The index for finished energy goods moved 

up 1.8 percent for the 3 months ended in 

September, following a 2.5-percent decline 

from March to June. Leading this upturn were 

prices for gasoline, which climbed 3.1 percent 

after dropping 11.0 percent in the preceding 

3-month period. Prices for home heating oil, 

diesel fuel, and liquefied petroleum gas also 

turned up in the third quarter. Residential 

electric power prices advanced more than 

they had from March to June. In contrast, the 

index for asphalt and other miscellaneous 

petroleum and coal products fell 6.1 percent 

from June to September, following a 

55.0-percent jump in the second quarter.

The index for finished consumer foods

climbed 1.6 percent in the third quarter, 

following a 3.0-percent decline in the second 

quarter. Leading this upturn, prices for fresh 

and dry vegetables rose 9.7 percent from 

June to September after falling 42.8 percent 

for the 3-month period ended in June. Prices 

for processed young chickens, cereal and 

bakery products, and canned carbonated soft 

drinks also turned up in the third quarter. 

The indexes for fresh fruits and melons and 

eggs for fresh use decreased less than they 

had in the prior quarter. In contrast, the index 

for beef and veal moved down 0.9 percent for 

the 3 months ended in September, following 

a 14.8-percent jump from March to June. 

Prices for dry, condensed, and evaporated milk 

products and confectionery end products also 

turned down in the third quarter.

The index for finished goods less foods 

and energy moved up 0.5 percent for 

the 3 months ended in September, the 

same rate of increase as in the preceding 

3-month period. In the third quarter, higher 

prices for motor vehicles, pharmaceutical 

preparations, alcoholic beverages, consumer 

plastics products, and civilian aircraft slightly 

outweighed lower prices for sanitary paper 

products; specialty cleaning, polishing, and 

sanitary products; non-wood commercial 

furniture and store fixtures; and electronic 

computers and computer equipment.

Intermediate goods

The PPI for Intermediate Materials, Supplies, 

and Components moved up 0.4 percent 

for the 3-month period ended September 

2010 subsequent to a 0.2-percent advance 

for the 3 months ended in June. This faster 

rate of increase was led by an upturn in 

the intermediate energy goods index. 

Contributing to a lesser degree, intermediate 

foods and feeds prices rose more in the 

third quarter than they had in the second. In 

contrast, the index for intermediate goods 

less foods and energy inched down after 

advancing in the second quarter.

 C U R R E N T P R I C E T R E N D S
5

 C U R R E N T P R I C E T R E N D S

The index for intermediate energy goods

increased 1.3 percent in the third quarter 

following a 2.5-percent decline in the second 

quarter. Diesel fuel prices rose 2.1 percent for 

the 3 months ended in September after falling 

5.8 percent in the preceding quarter. Prices for 

gasoline, lubricating oil base stocks, and utility 

natural gas also turned up after decreasing 

from March to June. The index for electric 

power advanced at a faster rate for the 3 

months ended in September than it had in the 

prior quarter. By contrast, the index for asphalt 

and other miscellaneous petroleum and coal 

products fell in the third quarter, following an 

increase in the second quarter.

The index for intermediate foods and feeds

rose 2.7 percent for the 3 months ended in 

September after advancing 1.1 percent in 

the previous quarter. Leading this faster rate 

of increase, prices for prepared animal feeds

moved up 3.7 percent, following a 2.2-percent 

decline for the 3-month period ended in 

June. The indexes for processed young 

chickens and for cereal and bakery products

also turned up in the third quarter. Prices for 

natural, processed, and imitation cheese and 

for bulk fluid milk and cream rose more than 

they had in the second quarter. In contrast, 

the index for beef and veal decreased 0.9 

percent from June to September after surging 

14.8 percent from March to June. Prices for 

frozen packaged fish and seafood and for dry, 

condensed, and evaporated milk products also 

turned down in the third quarter.

The index for intermediate goods less foods 

and energy edged down 0.2 percent for the 3 

months ended in September after advancing 

0.9 percent for the 3 months ended in June. 

Leading this downturn, prices for steel 

mill products fell 4.1 percent in the third 

0.2

1.1

-2.5

0.9

0.4

2.7

1.3

-0.2

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Overall Food Energy Core

Percent change

Mar 10–Jun 10 Jun 10–Sep 10

SOURCE: U.S. Bureau of Labor Statistics

Chart 2. Three-month percent change in PPI for overall, food, energy, and core 

intermediate goods, seasonally adjusted, 2010
6

 C U R R E N T P R I C E T R E N D S

quarter, following a 6.7-percent rise in the 

second quarter. The indexes for hardboard, 

fiberboard, and particleboard products; 

plastics products; plastic resins and materials; 

and lumber also declined after increasing in 

the prior quarter. Paperboard prices moved 

up less in the third quarter than they had 

in the preceding quarter. In contrast, the 

index for primary nonferrous metals climbed 

9.3 percent from June to September after 

dropping 8.6 percent from March to June. 

Prices for copper and brass mill shapes and 

for basic inorganic chemicals also turned up 

in the third quarter.

Crude goods

The PPI for Crude Materials for Further 

Processing moved up 4.6 percent from June to 

September, following a 5.8-percent decrease 

from March to June. Accounting for about 

60 percent of this upturn, prices for crude 

foodstuffs and feedstuffs climbed after falling 

in the second quarter. Also contributing to 

the overall upturn, but to lesser degrees, the 

index for crude nonfood materials less energy

also rose in the third quarter following a fall 

in the prior quarter, while the rate of decline 

in prices for crude energy materials slowed for 

the 3 months ended in September, compared 

with the second quarter.

The index for crude foodstuffs and feedstuffs

rose 12.2 percent from June to September, 

following a 4.7-percent decrease for the 3 

months ended in June. Roughly one-third of 

this upturn can be attributed to corn prices, 

which surged 60.6 percent after declining 

8.0 percent in the preceding quarter. 

The indexes for oilseeds, fresh and dry 

vegetables, wheat, and fluid milk also turned 

up in the third quarter. Prices for slaughter 

livestock increased more than they had in 

-5.8 -4.7

-8.2

-3.2

4.6

12.2

-4.2

8.2

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Overall Food Energy Core

Percent change

Mar 10–Jun 10 Jun 10–Sep 10

SOURCE: U.S. Bureau of Labor Statistics

Chart 3. Three-month percent change in PPI for overall, food, energy, and core 

crude goods, seasonally adjusted, 2010
 

 7

 C U R R E N T P R I C E T R E N D S

the 3 months ended in June. In contrast, the 

tree nuts index was unchanged from June 

to September after advancing 11.8-percent 

in the previous 3-month period. Slaughter 

turkey prices rose less than they had in the 

second quarter.

The index for crude nonfood materials less 

energy moved up 8.2 percent for the 3 months 

ended in September following a 3.2-percent 

decline in the preceding quarter. About 25 

percent of this upturn can be traced to prices for 

nonferrous scrap, which climbed 13.8 percent 

in the third quarter after falling 9.4 percent from 

March to June. The indexes for grains, copper 

ores, wastepaper, and iron and steel scrap

also rose after falling in the second quarter. By 

contrast, price increases for gold ores slowed 

to 3.7 percent from June to September from 8.1 

percent in the prior 3-month period. The hides 

and skins index moved down after advancing in 

the prior quarter.

The index for crude energy materials fell 4.2 

percent from June to September, following an 

8.2-percent decline for the 3 months ended 

in June. Most of this slower rate of decrease 

is attributable to prices for crude petroleum, 

which edged down 0.5 percent, following a 

7.1-percent drop in the second quarter. The 

natural gas index also declined less, moving 

down 11.4 percent in the third quarter after 

falling 13.1 percent in the prior quarter. In 

contrast, coal prices advanced 2.0 percent for 

the 3 months ended in September, following 

a 2.5-percent rise in the previous quarter.

Trade industries

The PPI for the Net Output of Total Trade 

Industries increased 1.6 percent in the third 

quarter of 2010 after declining 1.2 percent in 

the second quarter. (Trade indexes measure 

changes in margins received by wholesalers 

and retailers.) Leading this reversal, margins 

received by durable goods wholesalers rose 

4.0 percent, following a 4.1-percent drop from 

March to June. The margin indexes for family 

clothing stores, discount department stores, and 

supermarkets also turned up for the 3 months 

ended in September after decreasing in the prior 

3-month period. Margins received by gasoline 

stations with convenience stores and warehouse 

clubs and supercenters advanced more than they 

had in the previous quarter. In contrast, margins 

received by pharmacies and drug stores fell 11.9 

percent in the third quarter, compared with a 

0.3-percent decline for the 3 months ended in 

June. The margin indexes for gasoline stations 

without convenience stores and home centers

turned down after rising in the second quarter.

Transportation and warehousing industries

The PPI for the Net Output of Transportation and 

Warehousing Industries declined 1.1 percent 

for the 3 months ended in September after 

advancing 0.9 percent in the preceding 3-month 

period. Leading this downturn, prices received 

by the scheduled air transportation industry 

group fell 5.0 percent, following a 1.0-percent 

increase in the second quarter. Similarly, the 

indexes for couriers, truck transportation, rail 

transportation, and for general warehousing 
 C U R R E N T P R I C E T R E N D S

and storage also decreased in the third quarter 

after rising in the 3 months ended in June. In 

contrast, prices received by the Coastal and Great 

Lakes freight transportation industry climbed 6.6 

percent from June to September, compared with 

a 0.7-percent decline from March to June. In the 

third quarter, the rate of advance in the index for 

inland water freight transportation accelerated, 

while prices received by the nonscheduled air 

transportation industry turned up.

Traditional service industries

The PPI for the Net Output of Total Traditional 

Service Industries increased 0.7 percent 

for the 3 months ended in September, 

following a similar rise of 1.0 percent in the 

second quarter. During the third quarter, 

higher prices received by the depository 

credit intermediation industry group; 

the security and commodity contracts 

intermediation and brokerage industry 

group; direct life, health, and medical 

insurance carriers; and hospitals outweighed 

lower prices received by portfolio 

managers, periodical publishers, television 

broadcasters, and by direct property and 

casualty insurers.

8

Notes

1

 “PPI Industry or Commodity Data: Which Better Suits Your Needs?” Focus on Prices and Spending: Producer Price Indexes, 

Volume 1, Number 7, on the Internet at http://www.bls.gov/opub/focus/volume1_number7/ppi_1_7.htm.

2 Price movements for PPIs described in this text include preliminary data for the months of June 2010 through September 2010. 

All PPI data are recalculated 4 months after original publication to reflect late data received by survey respondents. Seasonally 

adjusted PPIs are recalculated, on an annual basis, for 5 years, to reflect more recent seasonal patterns.

3

 Energy Information Administration, on the Internet at http://www.eia.gov/dnav/pet/hist/LeafHandler.

ashx?n=PET&s=WCEIMUS2&f=W (visited Oct. 14, 2010).

4 Energy Information Administration, on the Internet at http://www.eia.gov/dnav/pet/hist/LeafHandler.

ashx?n=PET&s=WCRFPUS2&f=W and http://www.eia.gov/oog/info/twip/twip_gasoline.html#production (visited Oct. 14, 2010).

5

 “Feed Outlook, A Report from the Economic Research Service,” FDS-10j, Oct. 13, 2010, United States Department of Agriculture, 

on the Internet at http://usda.mannlib.cornell.edu/usda/ers/FDS//2010s/2010/FDS-10-13-2010.pdf (visited Oct. 13, 2010).

6

 “Wheat Outlook, A Report from the Economic Research Service,” WHS-10j, Oct. 13, 2010, United States Department of Agriculture, on the Internet at http://usda.mannlib.cornell.edu/usda/ers/WHS//2010s/2010/WHS-10-13-2010.pdf (visited Oct. 13, 

2010). Also, see “Oil Crops Outlook, A Report from the Economic Research Service,” OCS-10j, October 12, 2010, United States 

Department of Agriculture, on the Internet at http://usda.mannlib.cornell.edu/usda/ers/OCS//2010s/2010/OCS-10-12-2010.pdf

(visited Oct. 13, 2010).

7

 “Livestock, Dairy, and Poultry Outlook, A Report from the Economic Research Service,” LPD-M-195, Sept. 17, 2010, United States 

Department of Agriculture, on the Internet at http://www.ers.usda.gov/publications/ldp/2010/09Sep/ldpm195.pdf (visited Oct. 

13, 2010). Also, see Whitney McFerron and Elizabeth Campbell, “Corn Crunch Means Costliest Beef in Quarter Century,” Businessweek.com, Oct. 11, 2010, on the Internet at http://www.businessweek.com/news/2010-10-11/corn-crunch-means-costliest-beefin-quarter-century.html (visited Oct. 18, 2010).