PRICES AND SPENDING

U.S. BUREAU OF LABOR STATISTICS

FEBRUARY 2014 • VOLUME 3/ NUMBER 4

U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 1 www.bls.gov

Improvements to the Producer Price Index measure: 

the Final-Demand–Intermediate-Demand system

Authors: Joseph Kowal, Lana Borgie, Brian Hergt, and Antonio Lombardozzi

The release of January 2014 Producer Price Index (PPI) data 

marks the transition from the Stage of Processing (SOP) 

aggregation system to the Final Demand–Intermediate 

Demand (FD–ID) aggregation system. The transition to the FD–

ID system is the culmination of a longstanding PPI objective to 

improve upon the SOP aggregation system by incorporating 

price data for services, construction, government purchases, and 

exports. In comparison to the SOP system, the FD-ID system more 

than doubles PPI coverage of the U.S. economy to over 75 percent 

of in-scope domestic production. 

The FD–ID system highlights the index for final demand. Examples 

of final-demand goods include pharmaceutical preparations 

destined for personal consumption, construction machinery and 

equipment for private capital investment, diesel fuel and jet fuel 

for government, and organic chemicals for export. Examples of 

Related Articles

More BLS articles related to the Producer Price Index 

Final Demand–Intermediate Demand system are 

available online at the following links: 

y “Comparing new final-demand producer price

indexes with other government-price indexes,”

Monthly Labor Review, http://www.bls.gov/opub/

mlr/2014/article/comparing-new-finaldemand-producer-price-indexes-with-othergovernment-price-indexes.htm.

y “Analyzing price movements within the Producer

Price Index final demand–intermediate demand

system,” Monthly Labor Review, http://www.bls.gov/

mlr/2014/article/analyzing-price-movementswithin-the-producer-price-index-finaldemand-intermediate-demand-aggregationsystem-1.htm.
U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 2 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

1.9

1.4

2.2

1.1

0.7

1.3

0.0

1.0

2.0

3.0

Final demand Goods Services

Percent change 2012 2013

Source:U.S. Bureau of Labor Statistics.

Producer Price Index for total final demand, goods, and services, 12-month percent change, 2012 and 2013

final-demand services include consumer loan services, 

apparel retailing margins, passenger air transportation, 

wired and wireless telecommunication services for 

government, wholesale margins from machinery and 

equipment sold for capital investment, and wholesale 

margins from organic chemicals sold for export. Examples 

of final-demand construction include new school 

construction and new hospital construction.1 

The FD–ID system also includes two separate parallel 

treatments of intermediate demand: price changes 

for goods, services, and construction sold to business 

as inputs to production. One treatment, intermediate 

demand by type of commodity, measures price changes 

on the basis of similarity of product and includes 

aggregate indexes for processed goods for intermediate 

demand, unprocessed goods for intermediate demand, 

and services for intermediate demand. The other 

treatment, intermediate demand by production flow, 

is a stage-based system of price indexes in which price 

changes for goods, services, and construction can be 

studied as they move through the production chain of the 

economy to final demand. This treatment includes four 

stages of intermediate demand, which were established 

to maximize the forward flow of production through the 

economy while minimizing backflow of production.2

This issue of Beyond the Numbers presents 2013 PPI 

data based on the new FD–ID system. The PPI estimates 

shown with this system represent the beginning 

of wider coverage by the index, to be continued in 

subsequent issues. 

Price trends: producer inflation remains low in 2013

The PPI for final demand advanced 1.1 percent in 2013 

after rising 1.9 percent in 2012. Almost three-quarters 

of the slower rate of increase can be traced to prices 

for final-demand services, which moved up 1.3 percent 

following a 2.2-percent gain the previous year. The index 

for final-demand goods also rose less than it did in 2012, 

0.7 percent compared with 1.4 percent. (See chart 1.) In 

contrast, prices for final-demand construction climbed 3.0 

percent in 2013 after moving up 1.4 percent the previous 

year. Within intermediate demand, the index for processed 

goods was unchanged following a small increase in 2012, 

prices for unprocessed goods turned downward in 2013, 

and the index for services moved up at a slower rate than it 

did the previous year. (See table 1.)

Economic background

Leading the deceleration in producer inflation in 2013, 

prices for final-demand services and for services for 

intermediate demand rose less than they did in 2012. 

Chart 1

Source: U.S. Bureau of Labor Statistics.
U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 3 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

Selected Producer Price Indexes for final demand and intermediate demand, 12-month percent 

change, 2012 and 2013

Index 2012 2013

Final demand price index

Final demand 1.9 1.1

 Goods for final demand 1.4 0.7

 Foods 4.1 –1.1

 Energy goods –1.3 1.0

 Goods less foods and energy 1.4 1.1

 Services for final demand 2.2 1.3

 Trade services 3.8 –0.1

 Transportation and warehousing services 2.7 1.6

 Services less trade, transportation, and warehousing 1.4 1.9

 Construction for final demand 1.4 3.0

Intermediate demand, by type of commodity 

Processed goods for intermediate demand 0.4 0.0

 Processed foods and feeds 7.2 –3.1

 Processed energy goods –2.8 –1.3

 Processed materials less foods and energy 0.6 0.8

Unprocessed goods for intermediate demand 1.4 –2.1

 Unprocessed foodstuffs and feedstuffs 10.6 –6.2

 Unprocessed energy materials –4.5 4.4

 Unprocessed nonfood materials less energy –1.6 –5.9

Services for intermediate demand 2.9 1.0

 Trade services for intermediate demand 7.1 –1.5

 Transportation and warehousing services for intermediate demand 3.3 2.2

 Services less trade, transportation, and warehousing for intermediate demand 1.6 1.6

Construction for intermediate demand 1.0 1.9

Intermediate demand, by production flow

Stage-4 intermediate demand 1.9 0.8

 Total goods inputs to stage-4 intermediate demand 1.2 0.3

 Total services inputs to stage-4 intermediate demand 2.5 1.4

Stage-3 intermediate demand 1.5 0.4

 Total goods inputs to stage-3 intermediate demand 1.0 0.2

 Total services inputs to stage-3 intermediate demand 2.1 1.0

Stage-2 intermediate demand 0.5 –0.3

 Total goods inputs to stage-2 intermediate demand –2.0 –0.4

 Total services inputs to stage-2 intermediate demand 3.8 –0.1

Stage-1 intermediate demand 1.0 0.2

 Total goods inputs to stage-1 intermediate demand –1.3 –1.0

 Total services inputs to stage-1 intermediate demand 4.1 2.1

Source: U.S. Bureau of Labor Statistics.

Table 1
U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 4 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

Within services, the indexes for both final-demand trade 

services and intermediate-demand trade services turned 

downward in 2013. (Trade indexes in the PPI measure 

average changes in margins received by wholesalers and 

retailers.3) The downturn in trade margins was heavily 

influenced by activity in the retail sales sector. Retail 

sales increased 4.2 percent in 2013, compared with larger 

advances of 5.4 percent in 2012 and 7.5 percent in 2011.4

Retail sales excluding the motor vehicle sector moved 

up at a modest 3.2-percent rate in 2013, following a 

4.9-percent increase in 2012. In contrast, sales in motor 

vehicles and related parts climbed 8.7 percent in 2013, 

surpassing the 7.7-percent rise in 2012.5 The PPIs for both 

final-demand and intermediate-demand transportation 

and warehousing services rose less in 2013 than they 

did the previous year. Prices for transportation and 

warehousing services often change in response to contract 

adjustment formulas structured in accordance with a base 

price–fuel adjustment factor mechanism.6 In 2013, the 

index for gasoline fell 1.0 percent and prices for diesel fuel

declined 0.9 percent. 

From the perspective of goods, food prices turned 

downward consistently within final demand, intermediatedemand processed goods, and intermediate-demand 

unprocessed goods. Prices for corn and soybeans exhibited 

steep declines, following large increases the previous 

year. Corn production jumped 29.2 percent, to 12.925 

billion bushels in 2013, compared with a drought-induced 

12.8-percent drop in production in 2012. Similarly, soybean 

production rose 8.4 percent, to 3.289 billion bushels in 

2013, after declining 1.9 percent a year earlier.7 Moving 

through the production chain reveals that the indexes 

for prepared animal feeds, beef and veal, and processed 

young chickens also turned downward after rising in 2012. 

In contrast, the indexes for final-demand energy goods

and unprocessed energy materials turned upward in 2013, 

while prices for processed energy goods declined less than 

they had in 2012. 

Final demand

Final-demand services. In 2013, the slower rate of increase 

in the index for final demand can be traced primarily to 

the index for final-demand services. That index rose 1.3 

percent after climbing 2.2 percent in 2012. Within finaldemand services, the slower rate of advance was led by 

margins for final-demand trade services, which edged 

down 0.1 percent after rising 3.8 percent the previous 

year. Also contributing to the deceleration in inflation 

for final-demand services, the index for final-demand 

transportation and warehousing services increased 1.6 

percent following a 2.7-percent rise in 2012. In contrast, 

prices for final-demand services less trade, transportation, 

and warehousing advanced 1.9 percent after a 1.4-percent 

climb the previous year. 

Services detail. The advance in margins for apparel 

wholesaling slowed to 2.0 percent in 2013, from a 

24.3-percent increase the previous year. The indexes for 

truck transportation of freight and inpatient care also rose 

less than they did in 2012. Margins for fuels and lubricants

retailing turned downward after rising a year earlier. 

In contrast, the index for securities brokerage, dealing, 

investment advice, and related services increased 2.9 

percent following a 2.2-percent decline in 2012. Margins 

for flooring and floor coverings retailing also turned 

upward in 2013.

Final-demand goods. The increase in the index for 

final-demand goods slowed to 0.7 percent in 2013, 

after a 1.4-percent increase in 2012. In 2013, prices for 

final-demand goods less foods and energy advanced 

1.1 percent, compared with a 1.4-percent increase 

the previous year. The index for final-demand foods

fell1.1 percent after jumping 4.1 percent in 2012. In 

contrast, prices for final-demand energy rose 1.0 percent 

subsequent to a 1.3-percent decline the previous year. 

Product detail. Price increases for motor vehicles slowed 

to 1.2 percent in 2013, from 2.3 percent the previous 

year. The indexes for corn; prepared animal feeds; and 

hay, hayseeds, and oilseeds turned downward after rising 

in 2012. In contrast, prices for liquefied petroleum gas

rose 5.2 percent in 2013 following a 26.4-percent drop a 

year earlier. The index for fresh and dry vegetables also 

increased after declining in 2012.
U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 5 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

Finished goods. The finished-goods index is a special 

grouping that represents about two-thirds of final-demand 

goods through the exclusion of the weight for government 

purchases and exports. The finished-goods index constitutes 

about one-quarter of overall final demand. The index for 

finished goods moved up 1.2 percent in 2013, subsequent 

to a 1.4-percent increase a year earlier. In 2013, higher prices 

for pharmaceutical preparations, motor vehicles, residential 

electric power, and fresh and dry vegetables outweighed 

falling prices for processed young chickens and electronic 

computers and computer equipment.

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. One 

treatment organizes commodities according to their type, 

and the other organizes commodities in accordance with a 

stage-based, production flow model.

Intermediate demand by type of commodity

Processed goods for intermediate demand. The index for 

processed goods for intermediate demand was unchanged 

in 2013, following a 0.4-percent rise in 2012. The index 

for processed foods and feeds fell 3.1 percent in 2013, 

compared with a 7.2-percent jump in the previous 

12-month period. In contrast, price declines for processed 

energy goods slowed to 1.3 percent, from 2.8 percent in 

2012. The index for processed materials less foods and 

energy moved up 0.8 percent in 2013, after increasing 0.6 

percent the previous year.

Product detail. Within the index for processed goods 

for intermediate demand, prices for prepared animal 

feeds dropped 8.4 percent in 2013, compared with a 

20.3-percent rise a year earlier. The indexes for industrial 

electric power, diesel fuel, and particleboard and 

fiberboard also turned down after rising in 2012. In 

contrast, prices for jet fuel advanced 0.9 percent in 2013 

following a 5.4-percent decline the previous year. The 

index for steel mill products dropped less than in 2012.

Unprocessed goods for intermediate demand. Prices for 

unprocessed goods for intermediate demand declined 2.1 

percent in 2013, after rising 1.4 percent in 2012. Leading 

the downturn, the index for unprocessed foodstuffs and 

feedstuffs fell 6.2 percent after jumping 10.6 percent a 

year earlier. Prices for unprocessed nonfood materials 

less energy dropped 5.9 percent in 2013, following a 

1.6-percent decline the previous year. In contrast, the 

index for unprocessed energy materials rose 4.4 percent 

subsequent to a 4.5-percent decrease in 2012.

Product detail. Leading the downturn in the index for 

unprocessed goods for intermediate demand, prices 

for corn decreased 41.3 percent in 2013 after climbing 

23.6 percent in 2012. The indexes for hay, hayseeds, and 

oilseeds; gold ores; and coal also turned downward in 

2013. In contrast, prices for crude petroleum advanced 7.4 

percent, compared with an 11.0-percent decrease in 2012. 

The index for carbon steel scrap also increased in 2013 

after falling a year earlier.

Services for intermediate demand. In 2013, the rise 

in the index for services for intermediate demand

slowed to 1.0 percent, from 2.9 percent in 2012. The 

index for transportation and warehousing services 

for intermediate demand rose less, advancing 2.2 

percent, compared with a 3.3-percent increase in 2012. 

Margins for trade services for intermediate demand fell 

1.5 percent, following a 7.1-percent rise the previous 

year. Prices for services less trade, transportation, and 

warehousing for intermediate demand climbed 1.6 

percent in 2013, the same rate as in 2012.

Services detail. Among services for intermediate demand, 

the rise the prices for truck transportation of freight slowed 

to 0.2 percent in 2013 from 3.2 percent the previous year. 

The indexes for metals, minerals, and ores wholesaling; 

paper and plastics product wholesaling; and television 

advertising time sales turned downward after advancing 

in 2012. In contrast, the index for securities brokerage, 

dealing, investment advice, and related services rose 

2.9 percent in 2013 following a 2.2-percent decline the 

previous year. Prices for airline passenger services rose 

more than in 2012.
U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 6 www.bls.gov

BEYOND THENUMBERS PRICES AND SPENDING

Intermediate demand by production flow

Stage-4 intermediate demand. The stage-4 intermediatedemand index measures price changes for products 

purchased by industries that primarily produce output 

sold to final demand. The advance in the index for stage-4 

intermediate demand slowed to 0.8 percent in 2013, 

from 1.9 percent in 2012. In 2013, prices for total services 

inputs to stage-4 intermediate demand rose 1.4 percent, 

following a 2.5-percent increase the previous year, and 

the index for total goods inputs climbed 0.3 percent, 

after moving up 1.2 percent in 2012. Prices for truck 

transportation of freight rose less in 2013 than they had 

the previous year. The indexes for corn; metals, minerals, 

and ores wholesaling; and paper and plastics products 

wholesaling turned downward after large increases in 

2012. In contrast, the index for securities brokerage, 

dealing, investment advice, and related services, as well 

as the index for jet fuel, turned upward in 2013 following 

decreases a year earlier.

Stage-3 intermediate demand. The stage-3 intermediatedemand index measures price changes for products 

purchased by industries that primarily produce output 

sold to industries classified into stage 4. In 2013, the 

index for stage-3 intermediate demand rose 0.4 percent, 

following a 1.5-percent increase in 2012. Price advances 

for total services inputs to stage-3 intermediate demand

slowed to 1.0 percent, from 2.1 percent in 2012, and 

the index for total goods inputs edged up 0.2 percent 

in 2013 after advancing 1.0 percent the previous year. 

The index for air mail and package delivery services 

(excluding USPS) rose less in 2013 than in 2012. Prices 

for slaughter chickens, corn, and industrial electric 

power turned downward in 2013 after rising the 

previous year. In contrast, the index for steel mill 

products fell less, and prices for staffing services rose 

more, in 2013 than in 2012.

Stage-2 intermediate demand. The stage-2 intermediatedemand index measures price changes for products 

purchased by industries that primarily produce output 

sold to industries classified into stage 3. In 2013, the 

index for stage-2 intermediate demand declined 0.3 

percent, after rising 0.5 percent in 2012. Prices for total 

services inputs to stage-2 intermediate demand fell 0.1 

percent in 2013, following a 3.8-percent increase the 

previous year. In contrast, the decrease in the index 

for total goods inputs slowed to 0.4 percent from 2.0 

percent in 2012. The indexes for metals, minerals, 

and ores wholesaling; corn; prepared animal feeds; 

and paper and plastics products wholesaling turned 

downward in 2013 after rising the previous year. In 

contrast, prices for crude petroleum and securities 

brokerage, dealing, investment advice, and related 

services rose following decreases in 2012.

Stage-1 intermediate demand. The stage-1 intermediatedemand index measures price changes for products 

purchased by industries that primarily produce output 

sold to industries classified into stage 2. The index for 

stage-1 intermediate demand rose 0.2 percent in 2013, 

after advancing 1.0 percent in 2012. Price increases for 

total services inputs to stage-1 intermediate demand

slowed to 2.1 percent, from 4.1 percent in 2012. In 

contrast, the index for total goods inputs fell 1.0 percent 

in 2013 after a 1.3-percent decline the previous year. The 

increase in prices for rail transportation of freight and mail

slowed in 2013. The indexes for industrial electric power; 

paper and plastics products wholesaling; and metals, 

minerals, and ores wholesaling turned downward after 

rising in 2012. In contrast, the indexes for carbon steel 

scrap and for securities brokerage, dealing, investment 

advice, and related services rose in 2013 after falling the 

previous year. 

This BEYOND THE NUMBERS article was prepared by 

Joseph Kowal, Lana Borgie, Brian Hergt, and Antonio 

Lombardozzi, economists in the Producer Price Index 

Program. Email: ppi-info@bls.gov. Telephone: 202-691-

7705. 

Information in this article will be made available upon 

request to individuals with sensory impairments. Voice 

phone: (202) 691-5200. Federal Relay Service: 1-800-

877-8339. The article is in the public domain and may be 

reproduced without permission.
BEYOND THENUMBERS PRICES AND SPENDING

U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 7 www.bls.gov

Notes

Suggested citation

Joe Kowal, Lana Borgie, Brian Hergt, and Antonio 

Lombardozzi, “Improvements to the Producer Price Index 

measure: the Final-Demand–Intermediate-Demand 

system,” Beyond the Numbers: Prices and Spending, vol. 

3, no. 4 (Bureau of Labor Statistics, February 2014), 

www.bls.gov/opub/btn/volume-3/improvements-tothe-producer-price-index-measure-the-finaldemand–intermediate-demand-system.htm.

1. The FD–ID system was first introduced as a set of experimental indexes in January 2011. Nearly all new FD–ID goods, services, 

and construction indexes provide historical data back to either November 2009 or April 2010, and the indexes for goods 

that correspond with the historical SOP indexes go back to the 1970s or earlier. For more information about the FD–ID 

system, see “A new, experimental system of indexes from the PPI program,” Monthly Labor Review, February 2011, pp. 3–24, 

http://www.bls.gov/opub/mlr/2011/02/art1full.pdf; or Producer price indexes: PPI Final Demand–Intermediate Demand (FD–ID) 

aggregation system (U.S. Bureau of Labor Statistics, February 3, 2014), http://www.bls.gov/ppi/fdidaggregation.htm. For 

more detail about overall PPI methodology, see “Chapter 14. Producer Prices,” BLS Handbook of Methods (U.S. Bureau of Labor 

Statistics), http://www.bls.gov/opub/hom/pdf/homch14.pdf. 

2. The intermediate demand indexes titled “Processed Goods for Intermediate Demand” and “Unprocessed Goods for 

Intermediate Demand” are equivalent to the SOP indexes titled “Intermediate Materials, Supplies, and Components” and “Crude 

Materials for Further Processing.”

3. “Wholesale and retail Producer Price Indexes: margin prices,” Beyond the numbers: prices and spending (U.S. Bureau of Labor 

Statistics, August 2012, http://www.bls.gov/opub/btn/volume-1/pdf/wholesale-and-retail-producer-price-indexesmargin-prices.pdf.

4. Monthly and annual retail trade (U.S. Census Bureau, January 14, 2014), http://www.census.gov/retail. Data for December 2013 

are provided under the section titled “Advance monthly retail trade report.” For historical data, an Excel file is provided under 

the heading “Monthly retail trade report.” Data for 2013 described in the analysis presented in this Beyond the Numbers article 

were taken from the advance report, downloaded January 16, 2014; the remainder of the data presented was extracted from 

the historical Excel file.

5. In 2010 and 2011, retail sales of motor vehicles and related parts increased 10.7 percent and 9.9 percent, respectively. From the 

sector’s low point in 2009, during the 2007–2009 recession, to the close of 2013, retail sales of motor vehicles and related parts 

jumped 42.4 percent. 

6. “The impact of fuel surcharges on the PPI,” Focus on prices and spending, Producer Prices Index: second quarter 2011 (U.S. Bureau 

of Labor Statistics, August 2011), http://www.bls.gov/opub/focus/volume2_number6/ppi_2_6.pdf. 

7. Tom Capehart, Edward Allen, and Jennifer Bond, “Corn and sorghum production and carryout down for 2013/14,” Feed 

outlook, Economic Research Service Situation and Outlook Report FDS-14a (U.S. Department of Agriculture January 2014), 

see especially table 1, p. 13, http://www.ers.usda.gov/ersDownloadHandler.ashx?file=/media/1256968/fds_14a.pdf; 

and Mark Ash, “Record demand is seen for U.S. soybeans in first quarter of 2013/14,” Oil crops outlook, Economic Research 

Service Situation and Outlook Report OCS-14a (U.S. Department of Agriculture, January 14, 2014), see especially table 1, p. 8, 

http://www.ers.usda.gov/ersDownloadHandler.ashx?file=/media/1256457/ocs14a.pdf.

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