56 Monthly Labor Review December 2006

Petroleum Prices and Expenditures ‘

Price and expenditure measures

of petroleum products: a comparison

Price changes in petroleum products are closely

correlated among the three price programs of the

Bureau of Labor Statistics; changes in the BLS

petroleum-product CPI also correlate with changes

in consumer spending on those products, as measured

by the Consumer Expenditure Survey

Abby L. Duly,

Jeffrey A. Harris,

Ara M.

Khatchadourian,

Rozi T. Ulics,

and

Melissa C. Wolter

Abby L. Duly is an

economist formerly in

the Office of Prices

and Living Conditions,

Bureau of Labor

Statistics, and Jeffrey A.

Harris, Ara M.

Khatchadourian, Rozi

T. Ulics, and Melissa C.

Wolter are economists

in the same office. Email: harris.jeff@bls.gov

Political events in oil-producing countries,

hurricanes in the Gulf of Mexico, and

increasing global demand for petroleum

products have all contributed to sharp increases in

recent years in prices of crude oil and of petroleum

products derived from crude oil. From January 2000

to July 2006, the average price for a gallon of

unleaded regular gasoline in the United States

increased 130.5 percent.1 Personal consumption

expenditures on gasoline rose from $175.7 billion

to $287.3 billion from 2000 to 2005.2 Rising prices

and increasing expenditures are a concern for

consumers, business leaders, and Federal policymakers. As a result, reliable information on the prices and costs of crude oil and petroleum products is

more vital than ever in making decisions at all levels

of the economy.

The Bureau of Labor Statistics (BLS, the Bureau)

conducts price and consumer expenditure surveys

that measure both changes in prices of, and

expenditures for, petroleum products throughout

the various levels of the economy. This article

introduces the programs that carry out these

surveys, describes the petroleum data compiled

by those programs, explains the methodology

underlying the various crude-oil and gasoline

surveys, and provides historical comparisons of

price data across the BLS programs.

Price and expenditure programs

The Bureau conducts three price surveys and a

survey of consumer expenditures: the International Price Program (IPP), which measures import

and export prices; the Producer Price Index (PPI),

which measures prices received by domestic producers; the Consumer Price Index (CPI), which

measures consumer prices paid out of pocket; and

the Consumer Expenditure Survey (CE), which

measures out-of-pocket consumer expenditures.

Chart 1 illustrates the high correlation among the

three price indexes. (Two different PPI’s are shown.)

Each program has a different scope, measurement

goal, and methodology for collecting and compiling

data related to crude oil and petroleum products,

and the differences among the programs must be

understood in order to properly interpret and compare the movements among the respective indexes.

A description of each program’s measures of petroleum product prices and expenditures follows. The

appendix presents an exhibit summarizing the program methodologies.

Measurement of traded-goods inflation: the IPP’s

import and export price indexes. The IPP produces

indexes for import and export goods and services.

These indexes measure price changes on the basis

of the actual transaction prices of specifically

defined items and services coming into and leaving

the country. Published IPP indexes for crude oil

and refined petroleum products reflect three classification systems: the Harmonized Tariff System of

the United States, the Bureau of Economic Analysis

End Use classification system, and the North American Industry Classification System (NAICS.) These

indexes are used, among other things, to deflate

Petroleum Prices and Expenditures
Monthly Labor Review December 2006 57

various foreign trade statistics produced by the U.S. Census

Bureau and the Bureau of Economic Analysis.

Although the IPP calculates indexes for all petroleum products, only some of these products meet the program’s dollarvalue-of-trade threshold for public release. The IPP publishes

indexes solely for products with an annual dollar value of trade

for exports of at least $3.0 billion or a dollar value of trade for

imports of at least $3.0 billion. Because U.S. crude-oil exports no

longer exceed $3.0 billion per year, the IPP does not publish

export indexes for crude oil. By contrast, crude-oil imports have

a trade dollar value that greatly exceeds the IPP threshold. Indeed,

on the basis of a dollar value of more than $131 billion in 2004,

imported crude oil accounts for 9.35 percent of the overall IPP

import index, with all other imported petroleum products together

accounting for 3.45 percent of the weight of the import index.

Among the import and export price indexes the IPP produces

for other petroleum products are indexes for gasoline and

distillates.

Unlike most of the product indexes in the IPP, which reflect

price data collected directly from importers and exporters, the

import crude-oil index is based primarily on monthly transaction

data obtained from the Department of Energy’s Energy Information Administration (EIA) Form–856 survey.3

 This survey

collects data on prices and quantities of virtually all crude oil

imported into the United States. Because of its broad scope,

EIA–856 data are more comprehensive than data that can be

obtained from a sample of importers. EIA–856 data also encompass transactions for the entire calendar month, so that, in

contrast to price indexes for goods and services, for which the

reference period is the first week of each month, the IPP crudeoil index is composed of transaction data received over the

entire month.

One limitation of using the EIA–856 survey, however, is

that most of the transaction data are not available from the

Department of Energy in time for the first published estimate of

the crude-oil import index. Instead, the complete set of EIA–856

data for a given month is available on a delayed basis. For

example, most of the June 2006 prices were not available until

July or August 2006. To correct for this limitation, the IPP employs

two different estimation procedures to calculate its crude-oil

import index: a procedure for calculating the preliminary and first

revised index and a procedure for calculating two subsequent

revisions of the index.

To calculate the preliminary and first revised index when

the EIA–856 data are incomplete, the IPP uses a regression

model based on the incomplete EIA–856 data to estimate the

percent change in the price for crude oil. This regression

model’s estimates are much closer to the final estimate of the

Chart 1. Selected BLS price indexes, January 2000–December 2005

CPI for gasoline

(all types)

IPP crude-petroleum

import prices PPI for crude petroleum

PPI for gasoline

Index

(2000 = 100)

Index

(2000 = 100)
58 Monthly Labor Review December 2006

Petroleum Prices and Expenditures

monthly percent change in the crude-oil import index than are

the estimates derived from merely aggregating the incomplete

EIA–856 data.

The two subsequent revisions are calculated directly from

the EIA–856 data with the use of a modified Laspeyres index

formula based upon fixed item and index weights calculated

each year by the IPP.

4

 The weights are lagged 2 years. For

example, in 2006, the weights were calculated from 2004 trade

values. In January 2007, the IPP will start using 2005 weights.

At the item level, the IPP calculates the weight for each type of

Measurement of production inflation: the Producer Price

Index. The PPI publishes various monthly price indexes for crude

oil and refined petroleum products, including gasoline, diesel

fuel, and home heating oil. The indexes are based on prices

collected directly from domestic producers and are calculated

with the use of a modified Laspeyres index formula. The prices

for crude oil are generally location-specific net transaction

prices,9

 whereas the prices provided for refined petroleum

products are primarily national averages of net transaction prices

for the particular commodity. Crude-oil prices are received from

domestic producers at various wells within the United States,

including offshore operations. Prices for refined petroleum

products are not received from a specific location, but rather are

taken as national averages.

Before prices are collected, however, and in a manner similar to the

IPP process for direct collection, a sample of establishments is randomly drawn, and each establishment selected is visited by a BLS

representative, who attempts to persuade the establishment to

participate in the PPI survey. If the establishment agrees to participate,

a certain number of its products are selected to be priced for the

survey. Any particular product that an establishment produces has a

probability of selection proportional to the share of the establishment’s revenue from sales of the product. Once specific products

are selected, establishments send monthly price updates on those

products to the PPI. The updates reflect prices on the Tuesday of the

week containing the 13th of the month.10

The PPI publishes three types of indexes from the pricing data

that it collects: industry indexes, commodity indexes, and stageof-processing indexes. All three are subject to revision for up to

4 months after their initial publication. Revisions account for late

prices and corrections by respondents.

The PPI for an industry measures price changes received by

domestic establishments for the industry’s output sold outside

the industry. Industry indexes are structured according to NAICS.

Currently, the PPI publishes indexes for the crude-petroleum and

natural-gas extraction industries and for petroleum refineries.

Within these industries, the PPI also publishes indexes for

specific products manufactured by the industries. The product

indexes are aggregated into industry indexes with the use of

weights derived primarily from the Census Bureau’s industrylevel (value-of-shipments) data. The PPI does not test industry

indexes for seasonality or calculate any seasonally adjusted industry indexes.

PPI commodity indexes reflect price changes for specific

commodities, regardless of the commodities’ industries of

origin. Commodity indexes are classified according to a system

unique to the PPI. Currently, the PPI publishes detailed commodity indexes for crude petroleum, as well as for refined petroleum products, including gasoline, diesel fuel, and home

heating oil. In addition, an aggregate commodity index for all

fuels and related products and power is published. As with

industry-level PPI’s, weights for aggregating commodity-based

imported crude oil, or “crude stream,” in the EIA–856 survey.5

Each observation in the monthly index then represents a

tanker load of a particular crude stream that arrives in the

United States.

For each revision, a more complete set of EIA–856 data

becomes available for use in the monthly index calculation.

Therefore, for the two subsequent revisions, these data are

simply aggregated by the IPP into the crude-oil import index.

To achieve this aggregation, the IPP calculates the weighted

average price for each crude stream by summing products of

prices and quantities for all transactions for a crude stream

and then dividing the result by the sum of the quantities.

These weighted average prices are then combined into the

overall index, which, as mentioned, is weighted by the annual

trade value from 2 years earlier. As with all IPP indexes, the

final crude-oil index number is released 3 months after the

preliminary index is first published.

The IPP also uses EIA data to calculate a portion of its

refined-petroleum import and export indexes. Although the

IPP indexes include directly collected price data from importers and exporters for refined products such as jet fuel,

naphthas, kerosene, and petroleum gases, prices and weights

(at the lowest level) for imported and exported gasoline, diesel

fuel, and heating oil are derived from EIA data. In 1999, the IPP

stopped collecting prices for these refined products from

petroleum importers and exporters because of their insufficient

participation in the IPP survey and the existence of an alternative

source of prices. The IPP uses the EIA publication Petroleum

Supply Annual to update annual weights for the items that

currently represent such products in the indexes.6 This publication contains information on import and export volumes

for gasoline, diesel fuel, and heating oil, by Petroleum Administration for Defense district.7

 Spot price data for the first 5

business days of each month are then obtained on a monthly

basis from the EIA Web site for 16 Petroleum Administration

for Defense products that enter into the calculation of the

import and export indexes.8 These products are import and

export gasolines and diesel fuels from New York Harbor, the

Gulf Coast, and Los Angeles and import and export heating

oils from New York Harbor and the Gulf Coast. Unlike the PPI

and the CPI, the IPP does not seasonally adjust its refined

products indexes.
Monthly Labor Review December 2006 59

PPI’s are derived from the Census Bureau’s commodity-level

(value-of-shipments) data. Commodity indexes are tested for

seasonality, and if seasonal patterns are found, seasonally adjusted indexes are calculated. The commodity indexes for gasoline,

home heating oil, and diesel fuel all show seasonal patterns, so

seasonally adjusted indexes are produced for all three of these

commodities.

Stage-of-processing indexes are built from commoditybased PPI’s. Commodities are allocated to one or more stages

of processing on the basis of the class of buyer and the

amount of physical processing or assembling the commodity

has undergone. The three main stage-of-processing categories are finished goods, intermediate goods, and crude

goods. Energy goods are included in all three categories.

Gasoline, diesel fuel, and home heating oil respectively account for 4.95 percent, 0.28 percent, and 0.96 percent of the

stage-of-processing index for finished goods and 2.37 percent, 1.42 percent, and 0.49 percent of the index for intermediate goods.11 Crude petroleum accounts for 16.77 percent

of the crude-goods index.12 In addition to the highest-level

stage-of-processing indexes, indexes for crude, intermediate,

and finished energy goods are produced by the PPI. Stageof-processing indexes are available on both an unadjusted

and a seasonally adjusted basis.

As indicated in the previous paragraph, the PPI for Gasoline

is an important component of both the stage-of-processing

index for finished goods and that for intermediate goods. The

PPI for Gasoline is composed of three separate grades of

octane: regular, mid-premium, and premium. Regular gasoline

has an octane rating of 85 through 87, mid-premium 88 through

90, and premium greater than 90. Within each of these grades,

there are summer and winter seasonal blends, the products of

a two-phase program implemented by the Environmental Protection Agency (EPA) and aimed at reducing the volatility of

summertime gasoline. The volatility in gasoline is measured

as Reid vapor pressure (RVP).13 The PPI collects prices for the

lower RVP summer blend from April through August and the

higher RVP winter blend from September through March. Then

the gasoline indexes are quality adjusted to remove any changes

in them that are due to shifts in seasonal blend.

While less important than gasoline to the stage-of-processing

indexes, diesel fuel and home heating oil also are notable

components of those indexes. Both diesel fuel and home heating

oil are classified as light fuel oils and at one time were compatible.

In 1993, however, the EPA mandated that all highway diesel fuel

meet reduced sulfur content requirements. This new standard of

0.05 percent sulfur by weight, or 500 parts per million (PPM), was

significantly lower than the previous maximum sulfur allowance.

Then, in June 2006, the EPA implemented an even stricter

standard of 15 PPM for diesel fuel.14 The PPI’s separation of

diesel fuel and home heating oil, therefore, has become increasingly important.

Measurement of consumer inflation: the Consumer Price

Index (CPI). As a measure of the average change of prices for

consumer goods over time, the Consumer Price Index (CPI) is

perhaps the most widely recognized BLS price program. While

the IPP and PPI track the movement of both crude-oil prices

and refined petroleum products prices, the CPI tracks only the

price movement of refined petroleum products purchased by

consumers. The CPI publishes a monthly motor fuel index

that measures the average change in price over time of gasoline and other motor fuels.15 The motor fuel index had a relative

importance of 4.191 out of the U.S. city average of the CPI for

All Urban Consumers (CPI-U) as of December 2005.16 The

gasoline (all types) index accounts for the majority of the

motor fuel index’s weight and reflects the prices of three

grades of gasoline based on octane rating: unleaded regular,

midgrade, and premium gasoline.17 Other motor fuels, including diesel fuel and alternative motor fuels, account for a very

small percentage of the weight in the overall CPI for Motor

Fuel. Both the biennially updated weights and the relative

importance values are derived from Consumer Expenditure

Survey (CE) data.

BLS data collectors collect monthly price information from a

sample of national retail outlets drawn from the Telephone

Point-of-Purchase Survey conducted by the Census Bureau

for the Bureau of Labor Statistics. The CPI outlet sample for

all grades of gasoline currently consists of approximately 630

outlets. Each such outlet selected for gasoline pricing is assigned a price quote for each grade of gasoline, as well as for

diesel and alternative fuels. The current CPI sample has 1,892

price quotes for gasoline products and 238 quotes for other

motor fuels. Price information is collected for each category

of product, provided that the product is available for sale

when the BLS data collector visits the outlet. Unleaded regular,

midgrade, and premium grades are available for sampling

nearly every month, although diesel fuel sometimes is not

available. Alternative motor fuels, such as E85 and propane,

are rarely available. The prices collected are per-gallon unit

prices and include excise, sales, and other taxes paid by consumers. Prices are collected continuously throughout the

month and are reviewed for accuracy by CPI analysts in the

BLS national office. Unlike the PPI, the CPI does not make

adjustments for changes in the formulation of vehicle or motor

fuels stemming from air-pollution mandates.18

Once prices are collected and analyzed for the reference

month, the CPI basic indexes for motor fuels are calculated with

a geometric mean formula, aggregated across items and geographic areas with a modified Laspeyres index formula, and

published along with national, regional, and selected city average

prices for motor fuels. Because price data for the survey are

directly collected by the Bureau, no late or lagged prices are

included in the CPI. Therefore, revisions to published data are

rare, in contrast to the situation with the IPP and PPI programs,
60 Monthly Labor Review December 2006

Petroleum Prices and Expenditures

which revise their indexes 3 and 4 months, respectively, after

their initial publication.

Measurement of consumer spending: the Consumer Expenditure Surveys (CE). The Consumer Expenditure Surveys (CE)

program is composed of two separate surveys: a quarterly

Interview survey and a weekly self-administered Diary survey.

Each of these components has a unique sample and methodology. As the primary source of published data on petroleumrelated products, the Interview survey is the only one discussed

any further in this article.

The CE Interview survey is administered through home

visits by representatives of the Census Bureau and is processed and published by the Bureau of Labor Statistics. A

national probability sample of households designed to

represent the total U.S. civilian noninstitutional population is

drawn from the decennial census address file, supplemented

with new-housing permits. Each sample unit is interviewed

every 3 months over five calendar quarters and is then dropped

from the survey and replaced with a new sample unit. In 2004,

approximately 7,500 consumer units were interviewed each

quarter.19

All CE data are collected and published at the consumer unit

level. Just as the prices collected by the CPI include all sales and

excise taxes, so, too, do the expenditure amounts collected by

the CE. These expenditure amounts may be for items purchased

by the consumer unit for personal consumption or as gifts to

others. Business-related expenses and expenses for which the

consumer unit is reimbursed are not included.

The CE publishes tabulated information on average annual

expenditures, characteristics, and income, integrated from the

Interview and Diary surveys, by a variety of demographic

characteristics, such as region of residence, income level, and

age. Published data are weighted to the U.S. population and

are aggregated to meet statistical reliability criteria. Standard

errors are computed by the balanced repeated replication

method of variance estimation and are available to the public.20

Data are published annually, subject to a 1-year lag due to

collection and processing schedules.

The CE Interview survey collects information on expenditures

for gasoline, diesel fuel, and fuel oil for home heating use. For

this article, only the aggregated data for the CE published item

“gasoline and motor oil” are used, in order to ensure the integrity

of the data and allow for meaningful comparison with the gasoline

figures produced by the CPI.

21

In the CE Interview survey questionnaire, respondents are

asked for information about their average monthly expense

for gasoline and other fuels used in the operation of automobiles, trucks, and other vehicles. Subsequent questions

attempt to determine how much of that expense goes for diesel

fuel and how much is counted as a business expense. Then

the nonbusiness expenditure amounts of the monthly estimates, with appropriate sales taxes applied, are annualized for

publication.

The following tabulation, published by the CE, shows the

average amount spent annually by a consumer unit on gasoline and motor oil, as well as the consumer unit’s share of

transportation expenses, from 2000 to 2004:

Expenditure category 2000 2001 2002 2003 2004

Transportation ............. $7,417 $7,633 $7,459 $7,781 $7,801

Gasoline and motor

 oil .............................. 1,291 1,279 1,235 1,333 1,598

Share of transportation

 (percent) ...................... 17.4 16.8 15.9 17.1 20.5

As the figures demonstrate, mean expenditures varied rather

substantially in all three categories from one year to the next

over the 2000–04 period.

Spending on gasoline and motor oil is a component of overall

transportation expenditures in the CE. As the preceding tabulation shows, like mean expenditures, the proportion of transportation spending allocated to gasoline and motor oil has varied. In

2004, approximately $1 out of every $5 spent on transportation

was used to purchase gasoline and motor oil. (This expenditure

category also accounted for approximately 3.7 percent of total

annual spending.)

Price program comparison

The IPP, PPI, and CPI measure price changes for petroleum

products over time, whereas the CE measures changes in

consumer expenditures on gasoline. In the case of the price

surveys, methodological differences among BLS programs can

result in varying measures of price change for similar petroleum

products. To determine how significantly these methodological

differences affect index movements, this section compares price

changes for comparable petroleum products across BLS price

programs. Similarities between index movements are analyzed

both visually and through basic statistical analyses, including

correlations and means tests. Also compared is the relationship

between the CPI for Gasoline and CE mean expenditures on

gasoline, because expenditures on gasoline are likely to change

as the price of gasoline changes.

Comparison of IPP crude-oil index and PPI for Crude

Petroleum. The IPP measures monthly changes in the price

for crude petroleum imports to the United States. Prices used

in calculating the IPP index for crude petroleum are for multiple

days throughout the reference month. In contrast, the PPI

measures monthly changes in price for domestically produced

crude petroleum. Prices used in calculating the PPI typically

reflect the Tuesday of the week containing the 13th of the

reference month. Chart 2 shows 1-month percent changes in
Monthly Labor Review December 2006 61

the IPP index and the PPI for Crude Petroleum from January

2000 through December 2005. The sample means for IPP and PPI

crude petroleum were 1.4 percent and 1.6 percent, respectively,

and the sample standard deviations were 7.3 percent and 9.8

percent. These summary statistics indicate that the PPI tended

to be slightly more volatile than the IPP index from 2000

through 2005.

A visual examination of chart 2 indicates that, in spite of

methodological differences in the calculation of the index

between the IPP and the PPI, movements in the two crudepetroleum indexes have been similar. In the vast majority of cases,

the 1-month percent changes in the indexes are in the same

direction and similar in magnitude. In some cases, the magnitude

of the change in the PPI appears to be slightly higher than that in

the IPP index. This finding is in line with the summary statistics,

which show the PPI to have a slightly higher mean and standard

deviation than the IPP index. To examine more rigorously the

difference between the means of the two indexes for crude

petroleum, a paired t-test was conducted. The test’s null hypothesis was that the means of the two series are equal. The test

failed to reject the null hypothesis at the α = .05 significance

level, indicating that the means are not significantly different

from each other.

Finally, the correlation between the PPI for Crude Petroleum

and the IPP crude-petroleum index is 0.91, indicating a strong

relationship between them. Therefore, regardless of the aforementioned methodological differences, the visual examination

of chart 2, the means test, and correlation analysis all indicate

that the two crude-petroleum indexes have behaved similarly

over time. This parallel behavior is likely explained by the

nature of the crude-oil market. Crude oil is traded openly in

global commodity markets; hence, prices for domestic and imported crude petroleum should tend to converge, lest there

be unrealized opportunities for arbitrage.

Comparison of PPI for Gasoline and CPI for Gasoline. The PPI

measures monthly price changes in gasoline from the perspective

of the seller. In contrast, the CPI measures price change from the

purchaser’s perspective. Sellers’ and purchasers’ prices may

differ due to government subsidies, sales and excise taxes, and

distribution and marketing costs. Chart 3 presents the 1-month

percent changes in the seasonally adjusted PPI for Gasoline and

CPI for Gasoline from 2000 through 2005. Over the sample period,

the mean and standard deviation for the PPI for Gasoline were 1.6

percent and 8.0 percent, respectively, whereas the mean and

standard deviation for the CPI for Gasoline were 0.9 percent and

6.0 percent, respectively.

A visual examination of chart 3 indicates that price movements

for gasoline, as measured by the PPI and CPI, were similar from

2000 through 2005, although changes in the PPI appear to have

Chart 2. One-month percent changes in the PPI for Crude Petroleum and the IPP index for Crude

Petroleum, January 2000–December 2005

Percent

change

Percent

change

PPI

IPP
62 Monthly Labor Review December 2006

Petroleum Prices and Expenditures

been more volatile and often greater in magnitude than changes

in the CPI. The relatively greater volatility of the PPI for Gasoline,

compared with the CPI for Gasoline, is in part due to the two

programs’ different treatment of consumer taxes: the CPI includes

them, and the PPI does not. Hence, an identical change in the

price of gasoline would have a larger effect on the PPI than the

CPI.

22 An equality-of-means test, however, shows that, the

means are not significantly different from each other at the α

= .05 level of significance. The correlation coefficient between

the two series is 0.72, also showing a relatively strong relationship between PPI and CPI gasoline. Thus, the visual

examination of chart 3, the means test, and correlation analysis

all suggest a substantial relationship between the CPI for

Gasoline and the PPI for Gasoline in spite of methodological

differences.

The relationship between the PPI for Gasoline and the CPI

for Gasoline, however, does not appear to be as strong as that

between the IPP index for crude petroleum and the PPI for Crude

Petroleum. The correlation coefficient for PPI and CPI gasoline is

lower than that for IPP and PPI crude petroleum. In addition, the

difference between the means of PPI and CPI gasoline is greater

than the difference between the means of IPP and PPI petroleum.

These findings suggest that the methodological differences

between BLS programs measuring gasoline prices may be greater

than those between BLS programs measuring crude-petroleum

prices, especially because crude petroleum is, on average, more

volatile than gasoline.

Comparison of CPI average gasoline prices and CE mean

expenditures on gasoline and motor oil. CPI price data and

CE expenditure data on gasoline are expected to be related,

because the average amount spent by consumers on gasoline is

likely to be affected by gasoline prices. Chart 4 displays overthe-year percent changes in the CPI average price for gasoline

and average yearly expenditures on gasoline from 1995 through

2004.23 Over the sample period, the mean and standard deviation

of the annual change in the CPI average price for gasoline were

6.0 percent and 12.8 percent, respectively, whereas the mean and

standard deviation of the annual change in CE average expenditures on gasoline and motor oil were, respectively, 5.7 percent

and 10.0 percent.

A visual examination of chart 4 indicates a strong relationship

between the CPI for Gasoline and the CE average expenditures

on gasoline and motor oil. The correlation coefficient between

the two series is 0.96, also demonstrating a strong relationship.

This correlation shows the relative inelasticity of consumers’

response to changes in the price of gasoline. In general, chart

4 indicates that expenditures fall less than prices during

periods of declining prices and rise more slowly than prices

during periods of increasing prices.

Chart 3. One-month percent changes in the PPI for Gasoline and the CPI for Gasoline, January 2000–

December 2005

Percent

change

Percent

change

PPI

CPI
Monthly Labor Review December 2006 63

THE BLS PRICE PROGRAMS—THE IPP, THE PPI, AND THE

CPI—provide information on the changes in prices of various

petroleum products. In addition, the CE provides information

on consumer spending on petroleum products. Price changes

for these products generally show a close correlation among the

Notes

1

 Bureau of Labor Statistics, Consumer Price Index, average price

data, on the Internet at the BLS Website, www.bls.gov/cpi/home.htm.

2 National Income and Product Accounts, Table 2.3.5, “Personal

Consumption Expenditures by Major Type of Product” (U.S. Department

of Commerce, Bureau of Economic Analysis), on the Internet at

www.bea.gov/bea/dn/nipaweb.

3

 As of October 2006, a decision is pending about whether this program

will continue to be funded. For further information on the program’s

methodology, contact Ara Khatchadourian at khatchadourian.ara@

bls.gov.

4

 A pure Laspeyres index has fixed weights that reflect the base

period. The three BLS price indexes detailed in this article are described

as modified Laspeyres indexes because the Bureau regularly updates

the weights used in each index when new data are available.

5

 For a list of crude streams by country, see Appendix A of the “EIA856 Monthly Foreign Crude Oil Acquisition Report Instructions,” on

the Internet at www.eia.doe.gov/pub/oil_gas/petroleum/survey_forms/

eia856ip4.pdf.

price programs, and CPI changes also correlate closely with

consumer expenditure changes for such products. However, data

users should consider the differences in scope, measurement,

and survey methods among the four programs in comparing

changes across them.

6

 See Petroleum Supply Annual 2005, vol. 1 (Energy Information

Administration, Oct. 23, 2006), on the Internet at www.eia.doe.gov/

oil_gas/petroleum/data_publications/petroleum_supply_annual/

psa_volume1/psa_volume1.html.

7

 These districts were created by the Federal Government during the

Second World War. Their original purpose was to administer oil allocations. The EIA continues to use these regions for data collection purposes. For an example of such information pertaining to one particular

district, see “U.S. Refining Crude Oil Distillation Capacity, Valero and

Huntway PAD District Detail,” on the Internet at www.eia.doe.gov/

emeu/finance/mergers/vhpadd.html.

8

 The EIA defines a spot price as the price for a one-time openmarket transaction for the immediate delivery of a specific quantity

of a product at a specific location where the commodity is purchased

“on the spot” at current market rates.

9

 The net transaction price (the price after deductions for discounts

or other allowances have been made) for a given crude-oil item reflects

either the price of the item on the PPI pricing date or a monthly averChart 4. Percent changes in the annual averages of the CPI for Gasoline and in CE expenditures

for gasoline and motor oil, 1996–2004

Percent

change

Percent

change

CPI

CEPerc
64 Monthly Labor Review December 2006

Petroleum Prices and Expenditures

age of net transactions for the item. For comparability, the timing of

the price for a given item will remain unchanged. Thus, an item will

not be priced on the pricing date one month and then as a monthly

average the next month.

10 Although the PPI is aimed at collecting prices for the pricing day,

if respondents are unable to provide such prices, the PPI will accept

either prices that reflect a day close to the pricing day or average prices for a period that contains the pricing day.

11 The figures listed are the December 2005 relative importances of

component series in the PPI by stage of processing. Note that regular,

mid-premium, and premium grades of gasoline account for 3.55 percent, 0.53 percent, and 0.87 percent, respectively, of the relative importance to the Finished Goods Index.

12 The figure is the December 2005 relative importance of the

crude-goods series in the PPI by stage of processing.

13 RVP is the standard measure of the volatily of gasoline. The higher

the RVP, the more volatile the fuel is and the easier it evaporates. The first

RVP reduction phase began in June 1989, while the second phase began in

May 1992 and lasted throughout 1994. In December 1994, the EPA enacted

Phase 1 of the reformulated gasoline provisions of the Clean Air Act of

1990. The provisions required reductions in automobile emissions of

ozone-forming volatile organic compounds during the summer, highozone season, and of toxic air pollutants and nitrogen oxides during the

entire year, in certain areas of the United States. Phase 2 of the program,

which required additional reductions in volatile organic compounds and

nitrogen oxides (NOx) during the summer months, began on January 1,

2000.

14 This requirement was accounted for in the PPI through a quality

adjustment of the diesel fuel index that same June.

15 The CPI also publishes indexes for home fuel oil and other home

fuels; this article, however, focuses on motor fuels alone.

16 CPI relative importance tables are found on the Internet at

www.bls.gov/cpi/cpi_riar.htm.

17 High-altitude areas of the country have ranges of gasoline ratings

that may be different from the ranges just given.

18 See “The Treatment of Mandated Pollution Control Measures in

the CPI,” on the Internet at www.bls.gov/cpi/cpitreat.pdf, for more

information about the BLS policy not to make quality adjustments to

the prices of vehicle and motor fuels in the CPI.

19 A consumer unit is defined as (1) all members of a particular

household who are related by blood, marriage, adoption, or other legal

arrangements; (2) a person living alone or sharing a household with

others or living as a roomer in a private home or lodging house or in

permanent living quarters in a hotel or motel, but who is financially

independent; or (3) two or more persons living together who use their

income to make joint expenditure decisions. Financial independence

is determined by the three major expense categories: housing, food,

and other living expenses. To be considered financially independent,

the respondent must pay, at least in part, expenses for at least two of

the three categories. For example, a household occupied by two unrelated roommates is considered to contain two separate consumer

units if each roommate pays his or her own expenses.

20 More detailed information on estimation methodology is found

in the BLS Handbook of Methods; see Chapter 16, “Consumer Expenditures and Income.“

21 Note that in 2004 the unpublished average annual expenditure for

gasoline constituted approximately 92 percent of the published category.

22 As a hypothetical example, assume that the producer price of a

gallon of gasoline increases $.50, from $2.00 to $2.50. This rise in

price would produce a 25-percent increase in the PPI. However, the CPI

price would include a consumer tax (for this example, assume $.20 per

gallon). For the given $.50 increase in the producer price of a gallon of

gasoline, the consumer price would then increase from $2.20 to $2.70,

causing the CPI to rise only 22.7 percent. This simplified example illustrates one explanation as to why the CPI for Gasoline tends to be less

volatile than the PPI for Gasoline.

23 The CPI average price for gasoline for a specific year is the mean

of the CPI average gasoline prices for each month of that year.
Monthly Labor Review December 2006 65

Category

Classification

system(s)

Data collection

timeframe

Type of data

Quality adjust

petroleum

products for

environmental

mandates

Frequency of

publication

Revision

policy

Seasonally

adjusted data

Program

objective

Product

coverage

International Price

Program (IPP)

Measure changes in import

and export prices.

Crude oil and refined petroleum

products

Producer Price Index (PPI)

Consumer

expenditure

Survey (CE)

Consumer Price

Index (CPI)

Measure changes

in consumer prices.

Measure changes in producer

selling prices.

Refined petroleum

products

Crude oil and refined petroleum

products

Refined petroleum

products

Measure average

consumer

expenditures.

Samples are based on the

Harmonized System (HS).

Indexes are published on the

basis of HS, Bureau of Economic

Analysis (BEA) End Use, and

North American Industry

Classification System (NAICS)

classification systems.

Industry-based indexes are classified

according to the North American

Industry Classification System

(NAICS). Commodity-based indexes

are classified according to an

internal BLS system.

Internal BLS system Internal BLS system

Entire month for crude oil. First

week of the month for refined

petroleum products: gasoline, diesel

oil, and heating oil. Directly

collected spot and contract prices

for the reference month for other

types of petroleum products, such

as naphtha, jet fuel, kerosene, and

petroleum gases).

Prices for crude oil and refined

petroleum products are provided

by the Energy Information

Agency of the Department

of Energy.

Source of data

Crude oil: net transaction prices for

virtually all crude oil imported into

the United States. Refined

petroleum products: spot prices

for gasoline, diesel oil, and heating

oil from the first week of the

month are combined with directly

collected prices for other types of

petroleum products, such as

naphtha, jet fuel, kerosene, and

petroleum gases, to calculate

indexes for refined petroleum

products. The locations of the

gasoline, diesel oil, and heating oil

spot prices are New York Harbor,

the U.S. Gulf Coast, and Los Angeles.

Tuesday of the week containing

the 13th of the month. However,

if respondents are unable to provide

prices for that day, the PPI will accept

prices that reflect a day close to the

pricing day or average prices for a

period that contains the pricing day.

Throughout the

entire month Quarterly

Crude-oil prices typically are

manufacturer selling prices on the

pricing date, but in some cases may

be average prices for the entire

calendar month. Refined-petroleum

prices are manufacturers’ national

average prices for the pricing date.

Domestic producers submit prices

voluntarily.

Collected by Bureau

of Labor Statistics at

retail outlets across

the Nation.

Household interviews

on a quarterly basis for

five consecutive

quarters.

Directly collected

retail prices

Average annual

expenditures and

expenditure shares

No Yes No No

Monthly Monthly Monthly Annually

No Yes Yes No

Final index number is published

3 months after the preliminary

index number.

Final index number is published

4 months after the preliminary

index number.

Indexes are final upon

publication.

Survey estimates are

final upon publication.

APPENDIX exhibit A–1. Summary of program methodologies