Composite PPI Has Declined 3.2 Percent in Past Year

On Oct. 7, the BLS released its series of PPIs for more than 10,000 goods and services through September. For an explanation of this program see the end of this piece. The PPI data are helpful in monitoring price direction, though there may be a lag between the BLS reports and spot prices for steel products. We have also concluded that the actual index values of the PPIs of different products cannot be compared with one another because they are developed by different committees within the BLS. We believe this data is useful in comparing the direction of prices in the short and medium term, but tell us nothing about the absolute value.

Figure 1 shows the composite PPI of all commodities since January 2008. The index rose steadily for two and a half years through October 2018 before declining by 3.2 percent in 12 months through September this year. Overall, the composite was up by 2.9 percent in the 12 months of 2018 and has declined by 0.5 percent this year.

Table 1 is a summary of each segment that we examine on a year over one-, two- and three-year basis. The gain/loss pattern is shown by the color codes; we interpret rising prices as positive. We began this bimonthly analysis in January 2016 and the table has been predominantly green at the 24-month and 36-month level since February last year. In September, 10 of the 16 sectors were declining at the 12-month level, an increase from seven in our June analysis. The table includes direct comparisons where possible between steel and competing products, also some other plastic products for which there is no direct steel comparison, and a measure of price changes for transportation, warehousing and storage. Some specific comparisons of steel and steel products with their competition are as follows. Please note the Y axes are not to the same scale.

Figure 2 shows the year-over-year comparison of the price change of cold rolled steel sheet and flat rolled aluminum. The lines crossed in August last year and since then the price changes of steel and aluminum have been similar. Since and including July this year the price of cold rolled has declined faster than that of aluminum sheet.  

Figure 3 shows the same comparison for steel tinware products and aluminum cans, a very different scenario from their respective raw materials. The price of steel cans has risen at double-digit rates in the five months through September as aluminum can prices have declined in each of the last six months.

Figure 4 compares prefabricated metal with prefabricated wood buildings. In this analysis, steel has improved its competitive advantage this year. In 12 months through September, the PPI of wood buildings increased by 1.8 percent as steel buildings declined by 5.3 percent.

Figure 5 compares the price changes of steel and plastic pipe, which moved in opposite directions to the detriment of steel in 2018. Since then steel has come back in line with plastic.  

Figure 6 compares the changes in the price of truck and rail transportation. The escalation of truck transportation prices exceeded those of rail almost every month from January 2015 through April 2019 when the lines crossed. In September, the price escalation of trucking became negative 1.1 percent year over year.  

Figure 7 shows that the rate of change of the price of warehousing and storage declined steadily from April last year through March this year and since then has been relatively stable.

The official description of this program from the BLS reads as follows: “The Producer Price Index (PPI) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI). CPIs measure price change from the purchaser’s perspective. Sellers’ and purchasers’ prices can differ due to government subsidies, sales and excise taxes, and distribution costs. More than 10,000 PPIs for individual products and groups of products are released each month. PPIs are available for the products of virtually every industry in the mining and manufacturing sectors of the U.S. economy. New PPIs are gradually being introduced for the products of industries in the construction, trade, finance, and services sectors of the economy. More than 100,000 price quotations per month are organized into three sets of PPIs: (1) Stage-of-processing indexes, (2) commodity indexes, and (3) indexes for the net output of industries and their products. The stage-of processing structure organizes products by class of buyer and degree of fabrication. The commodity structure organizes products by similarity of end use or material composition. The entire output of various industries is sampled to derive price indexes for the net output of industries and their products.