U.S. October Producer Price Index Report (Text)

The following is the text of the U.S. producer price report for Oct. released by the Labor Department.

The Producer Price Index for finished goods declined 0.3 percent in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.8 percent in September and were unchanged in August. At the earlier stages of processing, the index for intermediate goods moved down 1.1 percent in October and crude goods prices fell 2.5 percent. On an unadjusted basis, the finished goods index increased 5.9 percent for the 12 months ended October 2011, the smallest year-over-year advance since a 5.6- percent rise in March 2011.

Stage-of-Processing Analysis Finished goods

In October, the decrease in finished goods prices was the result of a 1.4-percent drop in the index for finished energy goods. By contrast, prices for finished consumer foods inched up 0.1 percent. The index for finished goods less foods and energy was unchanged.

Finished energy: Prices for finished energy goods moved down 1.4 percent in October, the largest decrease since a 2.3- percent drop in June 2011. Nearly two-thirds of the October decline can be attributed to the gasoline index, which fell 2.4 percent. Lower prices for residential natural gas and home heating oil also were factors in the drop in the finished energy goods index. (See table 2.)

Finished foods: The index for finished consumer foods advanced 0.1 percent in October, the fifth consecutive monthly increase. Leading the October rise were prices for processed poultry, which moved up 4.8 percent. An increase in the index for eggs for fresh use also contributed to higher prices for finished consumer foods.

Finished core: The index for finished goods less foods and energy was unchanged in October following ten straight monthly advances. In October, higher prices for pharmaceutical preparations and civilian aircraft offset lower prices for light motor trucks and passenger cars, which declined 1.6 percent and 0.8 percent, respectively. (On a not seasonally adjusted basis, the index for light motor trucks increased 4.5 percent and prices for passenger cars moved up 3.0 percent.) In accordance with usual practice, most new- model-year passenger cars and light motor trucks were introduced into the PPI in October. (See Report on Quality Changes for 2012 Model Vehicles, at www.bls.gov/web/ppi/ppimotveh.htm).

Intermediate goods

The Producer Price Index for intermediate materials, supplies, and components fell 1.1 percent in October, the largest decline since a 1.5-percent drop in March 2009. Over half of the broad-based October decrease can be traced to prices for intermediate energy goods, which fell 2.6 percent. The indexes for intermediate goods less foods and energy and for intermediate foods and feeds also contributed to the decline in intermediate goods prices, falling 0.6 percent and 1.5 percent, respectively. For the 12 months ending October 2011, the intermediate goods index advanced 8.3 percent, the smallest year-over-year rise since an 8.1-percent increase in February 2011.

Intermediate energy: Prices for intermediate energy goods decreased 2.6 percent in October following a 1.7- percent rise in September. Nearly one-fourth of the decline can be attributed to prices for diesel fuel, which fell 5.5 percent. Lower prices for gasoline and jet fuel also were factors in the decrease in the intermediate energy goods index.

Intermediate core: The index for intermediate goods less foods and energy fell 0.6 percent in October, the largest decline since a 0.7-percent drop in February 2009. Sixty percent of the October decrease can be traced to prices for primary basic organic chemicals, which fell 5.8 percent. A decline in the index for plastic resins and materials also contributed to lower intermediate core prices.

Intermediate foods: The intermediate foods and feeds index fell 1.5 percent in October, the largest decrease since a 2.1-percent drop in July 2009. In October, a 3.8-percent decline in prices for prepared animal feeds accounted for over two-thirds of the decrease in the intermediate foods index.

Crude goods

The Producer Price Index for crude materials for further processing fell 2.5 percent in October. For the 3 months ending in October, prices for crude materials advanced 0.4 percent following a 5.9-percent decrease from April to July. In October, nearly forty percent of the broad-based monthly decline can be traced to a 4.3-percent drop in the index for crude nonfood materials less energy. Lower prices for crude energy materials and for crude foodstuffs and feedstuffs - down 2.2 percent and 1.8 percent, respectively - also contributed to the October decrease in the crude goods index.

Crude core: The index for crude nonfood materials less energy declined 4.3 percent in October. From July to October, prices for crude nonfood materials less energy moved down 1.8 percent after increasing 0.3 percent in the preceding 3-month period. In October, over forty-five percent of the monthly decrease is attributable to a 10.0-percent drop in the index for nonferrous metal ores. Falling prices for nonferrous scrap and corn also were significant factors in the October decline in crude core prices.

Crude energy: Prices for crude energy materials fell 2.2 percent in October. From July to October, the crude energy materials index edged down 0.1 percent following an 11.6-percent drop for the 3 months ending in July. In October, over eighty-five percent of the monthly decrease can be traced to the natural gas index, which fell 5.9 percent. Lower prices for crude petroleum also contributed to the decline in the index for crude energy materials.

Crude foods: Prices for crude foodstuffs and feedstuffs decreased 1.8 percent in October. For the 3 months ending in October, the index for crude foodstuffs and feedstuffs advanced 1.9 percent after moving down 3.2 percent from April to July. In October, a 9.3-percent drop in corn prices accounted for over eighty percent of the decline in the crude foods index.

Services Analysis

Trade industries: The Producer Price Index for the net output of total trade industries moved down 1.0 percent in October, the largest decrease since a 1.4-percent decline in June 2010. (Trade indexes measure changes in margins received by wholesalers and retailers.) Nearly forty percent of the October drop can be attributed to the index for merchant wholesalers of nondurable goods, which fell 2.0 percent. Lower margins received by gasoline stations with convenience stores and family clothing stores also were factors in the decrease in the total trade industries index.

Transportation and warehousing industries: The Producer Price Index for the net output of transportation and warehousing industries climbed 0.4 percent in October, the largest increase since a 0.6-percent rise in May 2011. Leading the October advance, the index for the scheduled air transportation industry group moved up 2.2 percent. Higher prices received for long-distance general freight trucking and inland water freight transportation also contributed to the increase in the transportation and warehousing industries index.

Traditional service industries: The Producer Price Index for the net output of total traditional service industries edged down 0.1 percent, the first decline since falling 0.4 percent in May 2011. The index for the depository credit intermediation industry group led the October decrease, dropping 1.7 percent. Lower prices for portfolio management services and passenger car rental also were factors in the decline in the total traditional service industries index.

The Producer Price Index for November 2011 is scheduled to be released on Thursday, December 15, 2011 at 8:30 a.m. (EST).

PPI Weights to be Updated

The Bureau of Labor Statistics will soon update the value weights used to calculate Producer Price Indexes to more accurately reflect recent production and marketing patterns. The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007.

All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100.

The basic structures of the PPI commodity and stage-of- processing classification systems will not change as a result of the weight revision. The PPIs classified according to the North American Industry Classification System (NAICS), however, will be updated in February 2012 with the release of January 2012 index data to reflect 2012 NAICS definitions established by the U.S. Census Bureau. The weight update will also result in significant shifts in the relative importance of various industries and products. These shifts will impact aggregate indexes in a manner commensurate with the relative gains and losses in value weights from 2002 to 2007.

Commodity and stage-of-processing relative importance figures for December 2011 will be available on February 14, 2012, two business days prior to the release of January 2012 PPI data. This information will be available on the PPI website at www.bls.gov/ppi or by calling the Division of Industrial Prices and Price Indexes, Section of Index Analysis and Public Information at (202) 691-7705.

To contact the reporter on this story: Chris Middleton in Washington cmiddleton2@bloomberg.net

To contact the editor responsible for this story: Marco Babic at mbabic@bloomberg.net

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