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Section 14

Prices

This section presents indexes of producerand consumer prices, actual prices forselected commodities, and energy prices.The primary sources of these data aremonthly publications of the Departmentof Labor, Bureau of Labor Statistics (BLS),which include Monthly Labor Review, Con-sumer Price Index, Detailed Report, Pro-ducer Price Indexes, and U.S. Import andExport Price Indexes. The Department ofCommerce, Bureau of Economic Analysisis the source for gross domestic productmeasures.

Producer price index (PPI)This index,dating from 1890, is the oldest continu-ous statistical series published by BLS. Itis designed to measure average changesin prices received by producers of allcommodities, at all stages of processing,produced in the United States.

The index has undergone several revi-sions (see Monthly Labor Review, February1962, April 1978, and August 1988). It isnow based on approximately 10,000 indi-vidual products and groups of productsalong with about 100,000 quotations permonth. Indexes for the net output ofmanufacturing and mining industrieshave been added in recent years. Pricesused in constructing the index are col-lected from sellers and generally apply tothe first significant large-volume commer-cial transaction for each commodityi.e.,the manufacturers or other producersselling price or the selling price on anorganized exchange or at a central mar-ket.

The weights used in the index representthe total net selling value of commoditiesproduced or processed in this country.Values are f.o.b. (free on board) produc-tion point and are exclusive of excisetaxes. Effective with the release of datafor January 1988, many important pro-ducer price indexes were changed to anew reference base year, 1982=100,from 1967=100. The reference year ofthe PPI shipment weights has been taken

primarily from the 1987 Census ofManufactures. For further detail regardingthe PPI, see the BLS Handbook of Methods,Bulletin 2490 (April 1997), Chapter 16.The PPI Web page is .

Consumer price indexes (CPI)The CPIis a measure of the average change inprices over time in a market basket ofgoods and services purchased either byurban wage earners and clerical workersor by all urban consumers. In 1919, BLSbegan to publish complete indexes atsemiannual intervals, using a weightingstructure based on data collected in theexpenditure survey of wage-earner andclerical-worker families in 1917-19 (BLSBulletin 357, 1924). The first major revi-sion of the CPI occurred in 1940, withsubsequent revisions in 1953, 1964,1978, 1987, and 1998.

Beginning with the release of data forJanuary 1988 in February 1988, most con-sumer price indexes shifted to a new ref-erence base year. All indexes previouslyexpressed on a base of 1967=100, or anyother base through December 1981, havebeen rebased to 1982-84=100. Theexpenditure weights are based upon datatabulated from the Consumer ExpenditureSurveys for 1993, 1994, and 1995.

BLS publishes CPIs for two populationgroups: (1) a CPI for all urban consumers(CPI-U), which covers approximately 80percent of the total population; and (2) aCPI for urban wage earners and clericalworkers (CPI-W), which covers 32 percentof the total population. The CPI-Uincludes, in addition to wage earners andclerical workers, groups which historicallyhave been excluded from CPI coverage,such as professional, managerial, andtechnical workers; the self-employed;short-term workers; the unemployed; andretirees and others not in the labor force.

The current CPI is based on prices offood, clothing, shelter, fuels, transporta-tion fares, charges for doctors and den-tists services, drugs, etc. purchased for

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U.S. Census Bureau, Statistical Abstract of the United States: 2004-2005

day-to-day living. Prices are collected in87 areas across the country from over50,000 housing units and 23,000 estab-lishments. Area selection was based onthe 1990 census. All taxes directly associ-ated with the purchase and use of itemsare included in the index. Prices of food,fuels, and a few other items are obtainedevery month in all 87 locations. Prices ofmost other commodities and services arecollected monthly in the three largestgeographic areas and every other monthin other areas.

In calculating the index, each item isassigned a weight to account for its rela-tive importance in consumers budgets.Price changes for the various items ineach location are then averaged. Localdata are then combined to obtain a U.S.city average. Separate indexes are alsopublished for regions, area size-classes,cross-classifications of regions and size-classes, and for 26 local areas, usuallyconsisting of the Metropolitan StatisticalArea (MSA); see Appendix II. Area defini-tions are those established by the Officeof Management and Budget in 1983. Defi-nitions do not include revisions madesince 1992. Area indexes do not measuredifferences in the level of prices amongcities; they only measure the averagechange in prices for each area since thebase period. For further detail regardingthe CPI, see the BLS Handbook of Methods,Bulletin 2490, Chapter 17; the ConsumerPrice Index, and the CPI home page:. InJanuary 1983, the method of measuringhomeownership costs in the CPI-U waschanged to a rental equivalence approach.This treatment calculates homeownercosts of shelter based on the implicit rentowners would pay to rent the homes theyown. The rental equivalence approachwas introduced into the CPI-W in 1985.The CPI-U was used to prepare the con-sumer price tables in this section.

Other price indexesChain-weightedprice indexes, produced by the Bureau ofEconomic Analysis (BEA), are weightedaverages of the detailed price indexesused in the deflation of the goods andservices that make up the gross domesticproduct (GDP) and its major components.Growth rates are constructed for yearsand quarters using quantity weights for

the current and preceding year or quarter;these growth rates are used to move theindex for the preceding period forward ayear or quarter at a time. The grossdomestic purchases chained price indexmeasures the average price of goods andservices purchased in the United States. Itdiffers from the GDP chained price index,which measures the average price ofgoods produced in the United States, byexcluding net exports. All chain-weightedprice indexes are expressed in terms ofthe reference year value 1996=100.

Measures of inflationInflation isdefined as a time of generally risingprices for goods and factors of produc-tion. The Bureau of Labor Statisticssamples prices of items in a representa-tive market basket and publishes theresult as the CPI. The media invariablyannounce the inflation rate as the percentchange in the CPI from month to month.A much more meaningful indicator ofinflation is the percent change from thesame month of the prior year. The pro-ducer price index measures prices at theproducer level only. The PPI shows thesame general pattern of inflation as doesthe CPI but is more volatile. The PPI canbe roughly viewed as a leading indicator.It often tends to foreshadow trends thatlater occur in the CPI.

Other measures of inflation include thegross domestic purchases chain-weightedprice index, the index of industrial materi-als prices; the Dow Jones CommoditySpot Price Index; Futures Price Index; theEmployment Cost Index, the Hourly Com-pensation Index, or the Unit Labor CostIndex as a measure of the change in costof the labor factor-of production; andchanges in long-term interest rates thatare often used to measure changes in thecost of the capital factor of production.

International price indexesThe BLSInternational Price Program producesexport and import price indexes for non-military goods traded between the UnitedStates and the rest of the world.

The export price index provides a mea-sure of price change for all products soldby U.S. residents to foreign buyers. Theimport price index provides a measure ofprice change for goods purchased from

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U.S. Census Bureau, Statistical Abstract of the United States: 2004-2005

other countries by U.S. residents. Thereference period for the indexes is2000=100, unless otherwise indicated.The product universe for both the importand export indexes includes raw materi-als, agricultural products, semifinishedmanufactures, and finished manufactures,including both capital and consumergoods. Price data for these items are col-lected primarily by mail questionnaire. Innearly all cases, the data are collecteddirectly from the exporter or importer,although in a few cases, prices areobtained from other sources.

To the extent possible, the data gatheredrefer to prices at the U.S. border forexports and at either the foreign borderor the U.S. border for imports. For nearlyall products, the prices refer to transac-tions completed during the first week of

the month. Survey respondents are askedto indicate all discounts, allowances, andrebates applicable to the reported prices,so that the price used in the calculation ofthe indexes is the actual price for whichthe product was bought or sold.

In addition to general indexes for U.S.exports and imports, indexes are alsopublished for detailed product categoriesof exports and imports. These categoriesare defined according to the five-digitlevel of detail for the Bureau of EconomicAnalysis End-Use Classification, the three-digit level of detail for the Standard Inter-national Trade Classification (SITC), andthe four-digit level of detail for the Har-monized System. Aggregate importindexes by country or region of originare also available.

No. 697. Purchasing Power of the Dollar: 1950 to 2003

[Indexes:PPI, 1982=$1.00; CPI, 1982-84=$1.00. Producer prices prior to 1961, and consumer prices prior to 1964, exclude Alaskaand Hawaii. Producer prices based on finished goods index.

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