Page 331 - Aida Hovsepian Onboarding

b. Budgeted volume in 2012 to be used to compare changes in delivered prices and
corresponding MPPI from 2012 to 2011
3. The producer price index performance is calculated at an item level over the same period as the
corresponding market basket item. Ex: 2015 average price of 103 and 2016 average price of
105, represents a 1.94% increase.
4. The producer price index item level performance is then indexed against the same dollar figure
of the respective market basket item at the start of the same period. Ex: start period value is
$2.10/case for market basket item.
a. This starting value is then used to calculate an ending value of the respective PPI item,
using the rate of performance as previously calculated.
b. If the PPI category item increased by 1.94%, then the starting price per case of $2.10 is
increased by 1.94% to result in an ending case value of $2.14.
5. The indexed method of performance calculation of the PPI is then put through the same case
volume as the market basket mix of the MPPI, yielding the comparison of only price change. The
difference in market basket item compared to PPI item results in the net performance
differential.
6. The market basket is treated as a unique index each year
a. Items are added and deleted each year
b. Mix shifts occur
7. Data gaps in PPI are treated as the average of the most recent periods
a. For some items, PPI is not consistently reported (Almonds)
b. Zeros cannot be a price result and must be deleted, otherwise it invalidates the average
price
8. PPI data can be revised for up to four months after initial release and consequently must be
updated every month up for the prior four respective months.
9. The most closely related individual PPI measure is assigned to each commodity.
a. The BLS thoroughly followed the North American Industry Classification System
(NAICS) and truly reports on every item accounted for in US manufacturing. Items are
often lumped together in categories, resulting in a dilution of the specific category
performance.
b. Classification of the MPPI items must following the same classification method as used
by the NAICS. This will result in the MPPI correlation to the PPI that includes the
specific market basket item.
c. The correlation may not seem accurate, but the respective PPI will contain and report
on all the transactions for the market basket item, even though it is pooled with other
related items in the performance reporting.
d. This leaves the correlation slightly less than perfect because of dilution.

For more details on the MPPI and Price Index processes, see Appendix A and Appendix B.

Section III: Work-papers and Appendices

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