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Your Role in the Producer Price Index Program

The Producer Price Index

The Producer Price Index (PPI) measures the change over time in the prices received by domestic producers of goods and services. It is the Nation's inflation indicator for the business sector of the economy. Its coverage is gradually expanding and eventually will encompass all marketed goods and services from US businesses. As such, it is one of the Nation's most important economic indicators. Along with the Consumer Price Index, the Producer Price Index forms the core of price movement information upon which many business and government policies are based.

Besides supporting business and governmental decision making, PPI data are critical inputs into the development of other sensitive economic indicators, including estimates of gross domestic product and of industrial productivity. The importance of PPI data is clearly indicated by the extensive media coverage given to its release each month and by its widespread use in escalation contracts in the business sector.

What the PPI provides

The PPI has provided timely and accurate data about price change in the American economy since 1902. More than 10,000 price indexes for individual products and services are published each month. These detailed indexes are grouped by industry, and price indexes covering the total output of over 550 industries are published.

Industry PPIs are classified by the Standard Industrial Classification (SIC) system, providing comparability with other available industry-based statistics on productivity, production, employment, wages, and earnings. Examples of industries for which PPIs are published include:

• SIC 1011-Iron ores mining
• SIC 2833-Medicinal chemicals and botanical products
• SIC 3571-Electronic computers
• SIC 4813-Telephone communications (except radiotelephone)
• SIC 5093-Scrap and waste materials
• SIC 5251-Hardware stores
• SIC 6531-Real estate agents and managers
• SIC 7311-Advertising agencies
• SIC 8062-General medical and surgical hospitals

In addition to the numerous detailed PPIs for the products and services of industries, several major aggregate measures of price change are also published each month. These include the closely watched stage-of-processing indexes- especially the PPI for Finished Goods-that receive so much media attention when they are released each month.

Your Role

Participation in the Producer Price Index program will involve only a few minutes of your time each month. After an initial interview conducted at your office, your role will generally be limited to reporting the current price each month for a selection of your products or services. If you make changes in the product or service being priced, we ask that you note these changes in the space provided on the form.

The Bureau of Labor Statistics (BLS) has selected your firm, and the others in the sample, as the first step in a two-step procedure designed to yield statistically valid price indexes for the individual product lines in your industry. The Bureau's use of a sample of firms to measure price change, rather than a complete canvas of every company, greatly lessens the burden of PPI data collection on an industry and helps minimize costs to taxpayers.

The use of a relatively small sample places a premium upon the cooperation of the firms that are selected. Whether your firm is large or small, your products and services standard or customized, you represent a segment of American industry that the Producer Price Index must reflect, if it is to be an accurate economic indicator. Large companies are important because of their market share. Small firms often collectively hold a substantial market share and may operate in market "niches," where large firms are absent. Therefore, representation of firms of all sizes is critical to the accuracy of the PPI.

To insure the reliability of the PPI, BLS must continually update the samples of firms because of the rapid pace of entry, exit, and new product introduction that characterizes American industry. It would be clearly inappropriate to expect a sample of companies selected at one point in time to remain representative of an industry indefinitely. To keep PPI samples representative, and to rotate the program's burden so that smaller firms are not unduly affected, BLS changes the companies sampled for the PPI on average every 4 to 7 years.

On occasion, a company may be reselected when a sample is updated for an industry, especially if the company has retained its market share. Therefore, when this happens, the company is very important to the index and it is hoped that it will continue to participate in the survey.
Your firm's role is to represent your industry in the PPI, an important economic measure. Because of this, your voluntary participation is extremely important. A BLS field economist will contact you soon concerning your participation.

Your interview with a BLS field economist

A BLS field economist will meet with you at your place of business to conduct the second stage in the sampling process-the determination of which of your products and services will be priced. The field economist will ask you to provide employment and revenue information on a one-time basis. This information will be used to scientifically select the specific products or services from your company to be priced, as well as to correct any errors we have made in assigning an industry weight, or relative importance, to your firm. The likelihood of our selecting any one of your products or services is proportional to its share of your firm's revenue. Selection of a product or service is made by a statistical procedure called probability sampling.
Just as both small and large firms are represented in the PPI, both high- and low-volume products or services may be selected for pricing at your company. As a result, it is possible that, with the small number of price requests BLS makes of an individual firm, the selected products or services may not be fully representative of that firm's output. However, because products, services, and firms are weighted in the PPI according to their size, the total sample of items across all selected companies will be properly representative for an industry as a whole.

Because every business is unique, it is not always possible to obtain all the data requested in the preferred format. As a result, BLS has developed a number of alternative procedures that can be used by the field economists. These economists are familiar with your industry and are skilled in statistical techniques. By working with you, they can adapt PPI methodology to the specific conditions that exist in your firm. Because each firm selected is important to the Producer Price Index program, BLS will do all that is possible to minimize your burden and encourage your participation.

Once the sample of specific products and services is selected, the field economist will request information from you to prepare detailed specifications, or product/service descriptions. These specifications will aid in the identification of the relevant products and services in future time periods when you or an employee designated by your firm, are reporting your current prices.

Your periodic report of prices

Each month BLS will mail, or fax to you a brief survey form for each selected product and service to be priced at your firm. We ask that you examine the detailed product or service description on each form and provide any changes. The field economist will discuss this with you at your interview. If you have questions or require assistance with your report on prices, the name and telephone number of the PPI Washington office economist for your industry is included in the left-center area of each survey form.

Confidentiality

The Bureau of Labor Statistics will use the information you provide for statistical purposes only and will hold the information in confidence to the full extent permitted by law. Information will not be released in any form that will allow your business to be identified. Nor will the data be shared in such a form with any other government agency. Data are published only after they have been consolidated to screen individual company reports from disclosure. It is the opinion of the Solicitor of Labor, supported by case law, that section (b) (4) of the Freedom of Information Act (FOIA), exempting from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential," clearly applies to the data BLS is asking you to provide for the PPI. In the few instances in which others have sought to subpoena confidential BLS data under the FOIA, the courts have denied the requests.

Uses of PPI Data

Producer Price Index data are widely used by businesses, as well as government, unlike many Federal reporting programs, which provide information primarily or exclusively for government. Price movements prior to the retail level are important, because of their direct relevance to the industries measured and also because they may foreshadow subsequent price changes for businesses and consumers.

With the increasing reliance of business on quantitative economic data, accuracy of inflation-related information is crucial to accurate forecasting of income, costs, and profits.

Getting More Information

The BLS field economist who calls will be happy to discuss the Producer Price Index program with you in detail and answer any questions you have. If your business does not currently receive PPI information, our economist can show you examples of the data produced, including-in most cases-information specific to your industry. For those particularly interested in contract escalation, BLS has prepared Escalation and Producer Price Indexes: A Guide for Contracting Parties, BLS Report 807 (September 1991).

BLS offers access to PPI news releases, publications, and the full range of PPI data at http://www.bls.gov/ppi/ through a World Wide Web site. Here you can subscribe to the BLS News Service to have selected Bureau of Labor Statistics news releases delivered via e-mail, or choose to be notified of new publications and specific data summaries. There is no charge for the e-mail subscription service. To obtain assistance with using this site, contact the Section of Index Analysis and Public Information at (202) 691-7705, or at ppi-info@bls.gov via e-mail. The Information Section can also assist with questions concerning PPI methodology, data, and publications. The mailing address is Bureau of Labor Statistics; Division of Producer Price Indexes; Section of Index Analysis and Public Information, Room 3840, 2 Massachusetts Avenue NE, Washington, DC 20212-0001.

The BLS Office of Publications maintains a fax-on-demand service that enables data users to request faxes of BLS news releases, technical information, and frequently requested statistics 24 hours a day, 7 days a week. To obtain information from this service, first call (202) 691-6325 and request the Ready Facts catalog containing a list of popular and special interest documents, each with a corresponding code. To select a document from Ready Facts, re-dial and follow the voice instructions to input the code number of the information desired and your fax number.

Alternatively, if it is more convenient, you can request BLS information from the regional offices. A list of BLS regional offices and contact information is shown on the last panel of this brochure.

In addition to the national fax-on-demand service, each of the Bureau's regional offices maintains its own Ready Facts catalog that contains all entries found in the national catalog, as well as documents that highlight areas of special regional interest. The fax-on-demand numbers are also shown on the last panel.

BLS Regional Economic Analysis and Information Offices

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