Producer Price Highlights during 2001: The Decline of the PPI for Finished Goods in 2001 Was the Largest in 15 Years; Prices for Natural Gas and Crude Petroleum Fell Back to 1999 Levels. (Producer Prices, 2001)

Article excerpt

The Producer Price Index (PPI) for Finished Goods declined 1.6 percent in 2001, the largest calendar year decrease since a 2.3-percent drop in 1986. This index rose 3.6 percent in 2000, and 2.9 percent in 1999. Finished goods are commodities that are ready for sale to the final-demand user, either an individual consumer or a business firm. The majority of the 2001 decline in finished goods prices can be traced to a 17.1-percent drop in finished energy prices. Excluding energy, the index for finished goods advanced 1.2 percent in 2001. Following a 1.7-percent gain in the prior year, the index for finished consumer foods rose 1.8 percent in 2001. Prices for finished goods less foods and energy--a category that includes both consumer goods and capital equipment--increased 0.9 percent in 2001, following a 1.3-percent advance throughout the previous 12 months.

Prices for commodities at the overall crude and intermediate stages of processing also experienced declines for the 2001 calendar year. The PPI for intermediate materials, supplies, and components fell 4 percent in 2001, after posting a 4.1-percent gain in 2000. Intermediate goods in the PPI reflect material inputs to the manufacturing process, as well as various supplies consumed in the production process. Prices for crude materials for furthering processing dropped 32.5 percent, following a 35.5-percent jump in the prior calendar year. Crude goods are unprocessed goods that are primarily outputs from mining industries and agricultural production.

Throughout 2001, energy prices turned down at both the crude and intermediate stages of processing. The index for intermediate foods and feeds rose at a much slower rate in 2001 than it did in 2000. Prices for crude foodstuffs and feedstuffs turned down, after falling a year earlier. Excluding foods and energy, the indexes for intermediate goods and crude materials posted declines. (See table 1.)

Energy goods

Falling prices for both natural gas and petroleum-based commodities pushed energy prices down in 2001 at all three stages of processing. The crude energy index dropped 52.9 percent, compared with an 85.6-percent jump in 2000. This decrease was primarily the result of declining prices for natural gas and crude petroleum. Prices for energy goods at the intermediate stage of processing fell 16.9 percent, subsequent to a 19-percent gain a year earlier. The indexes for jet fuels, diesel fuel, and industrial and commercial natural gas registered declines in 2001, after rising in the prior year. At the final stage of processing, the index for finished energy goods decreased 17.1 percent, following a 16.6-percent advance in 2000. Falling prices were observed for gasoline, residential natural gas, liquefied petroleum gas, and home heating oil. (See table 2.) Natural gas. The last 5 years have shown volatile price movements within the natural gas market, especially looking at the years 2000 and 2001. Prices were relatively lower and more stable in 1998 compared with 1997. Throughout the 1998-99 winter heating season, the natural gas index fell, but at a smaller magnitude compared with the previous season. Mild winter weather caused less demand for consumption, and therefore resulted in higher storage levels. By the winter of 1999-2000, weather conditions continued to be much warmer than expected; therefore, prices remained low.

Natural gas prices began to rise considerably in 2000 when the combination of decreasing supplies, high crude oil prices, and weather-related demand pushed natural gas prices to new heights. Demand for natural gas rose as consumers began switching from higher-priced crude oil to lower-priced natural gas. During the spring and early summer of 2000, supplies began to tighten, causing the price of natural gas to climb throughout the rest of the year.

After surging 192.6 percent in 2000, the PPI for natural gas decreased 65. …