Bob Richardson

The most popular LIFO method these days is the IPIC (Inventory Price Index Computation) LIFO method for which LIFO inflation measurement is made by reference to price indexes published monthly in Table 9 of the PPI Detailed Report by the Bureau of Labor Statistics (BLS).

The BLS adds new commodity codes and discontinues others every six months. The volume of these changes has increased significantly ever since the BLS started publishing commodity codes having greater than 8 digits (the maximum length for PPI commodity codes for many decades) several years ago. In the changes they announced in January 2012, there were over 200 commodity codes discontinued and almost 400 new codes added (out of about 2,500 total commodity codes). The volume and frequency of these changes makes it difficult to maintain an official “list” of valid PPI commodity codes that inventory balances should be assigned to for IPIC method LIFO calculations.

Several of the most noteworthy changes made by the BLS in recent years include:

1. Greater than 8 digit codes – About 10 years ago, the BLS was trending toward using fewer Table 9 PPI commodity codes however this trend reversed several years ago and part of this change was to start using 9, 10 and 11 digit codes although the 8 digit codes are still the most detailed codes published for most inventory types.

2. More detailed codes published – Notwithstanding the new greater than 8 digit code policy, the BLS, in general is now publishing a greater number of more detail categories then they have in the past. This policy seems to come and go because the trend was just the opposite several years before that.

3. Recoded codes – Starting several years ago, the BLS began the practice of changing the PPI commodity code for some codes. These are different than discontinued codes because the new codes (recoded to code) index history is the same as that for the old code (recoded from code). An example of this is the code that, before December 2011 was 11480413 Automotive air conditioning compressors became (was recoded to) 14120512B Automotive air conditioning compressors (open type, with or without motor) after December 2011.

4. Services codes – Prior to July 2009, the Table 9 codes were organized using 15 different 2-digit codes (first two digits of all codes) representing 15 different commodity types. After that date, the BLS added numerous “Wherever-Provided Service” PPI Table 9 codes. These new service PPI Table 9 codes have 2-digit codes of 30 through 80. These services Table 9 codes should not be used for LIFO calculations. Most of the services Table 9 codes are codes for which indexes were never published before but there were some Table 9 codes that were reclassified to services. These were mostly related to printing.

An example of there being more detailed commodity codes published now are the codes included in the 1017 Steel mill products 4-digit code. Prior to December 2010, there were seven different 6-digit codes included in the 1017 code and now there are 19 different 8-digit codes. The codes published now are similar to the more detailed codes used prior to 2003 when the BLS stopped publishing all but the seven different 6-digit codes.

Another example of there being more detailed commodity codes published now are the codes included in the 0638 Pharmaceutical preparations 4-digit code. Prior to December 2009, there were 8 different 6-digit codes (with no distinction between Rx v. OTC drugs) included in the 0638 code and now there are 32 different codes and there are Rx v. OTC distinctions for some (but not all) of these. Here again, this is another big change in the codes published by the BLS within a few years because prior to 2001, there were about 35 different drug PPI codes with separate codes for Rx v. OTC for all drugs.

Keeping up with these changes in the PPI commodity codes makes Simplified LIFO (a commonly used term describing the IPIC LIFO method) not so simple. The IRS Regs. do not specifically address cases in which the BLS published more detailed codes than before. The presumption is that the more detailed codes published now should be used for LIFO calculations except in some cases for which the 10% method is used. Using the more detailed codes may provide some taxpayers more Producer Price Index inflation. Because there is a long history of there being more inflation in Rx drugs as compared to OTC drugs, taxpayers with Rx drug inventories will usually have more LIFO PPI inflation using the more detailed codes with the Rx suffix.

Our clients save large amounts of time for these reasons:

  • Automated software – LIFO-PRO’s software will automatically make the reassignments of PPI codes that are necessary for discontinued and recoded from codes to the proper replacement codes. The proper replacement codes are not made known by the BLS; these are based on our research.
  • List of PPI commodity codes – We provide our clients that make assignment of the PPI commodity codes to their inventory items a list of all PPI codes published since 1992. This list provides information for each code about whether and when a code has been discontinued or recoded, the discontinued or recoded date and the replacement or recoded to code. Information is also included to show when the code was introduced (if it was introduced in recent years) and whether indexes have been published for the category within the past several years.