For many years prior to October 2021, the Bureau of Labor Statistics (BLS) published preliminary Producer Price Indexes (PPI) in the middle of the month proceeding each index release. For example, the BLS released January ’23 PPI on February 16th of this year. (final January indexes will be released four months from now or in June when May ’22 PPI is released). The difference between the preliminary and final indexes are corrections in survey respondents’ data provided and the late receipt of price surveys received after the initial deadline. Starting in October 2021, the BLS decided they would start publishing four different versions of preliminary indexes. For example, the September preliminary indexes published in October will now be the first set preliminary indexes, but then there will be a second, third and fourth set of September preliminary indexes published in November, December and January. With this change, the BLS has developed an approach where corrections & late survey receipts are updated on a monthly basis rather than being batched or accumulated until the release of the final indexes. The important takeaway is this – prior to this change, preliminary PPIs remained a fixed number and did not change upon their release. Now with the new BLS policy, any given month’s preliminary PPI will change from month to month.
This change has the potential to cause chaos for auditors trying to tie indexes used for a client’s LIFO calculation back to the BLS source data published on their website. Within our firm, a policy has been implemented to consider the first version of the preliminary indexes as the preliminary index to be used for all LIFO calculations made using preliminary PPIs. Our rationale for this is that the reason companies use the preliminary indexes instead of final indexes is to be able to complete their LIFO calculations earlier and it would be way too confusing to use four different versions of preliminary indexes. A small minority of companies making LIFO calculations use final indexes because these indexes are the most precise version of the indexes. While this is true, over the long run, a taxpayer will be getting the same amount of inflation regardless of whether preliminary or final indexes are used and that if the preliminary indexes are overstated or understated for a year end, this will be a self-correcting error when the preliminary index for the next year is used notwithstanding that the inventory mix will change from year to year. See LIFOPro’s blog regarding preliminary vs. final indexes here: What Companies Using IPIC LIFO Need to Know About Preliminary vs. Final Producer Price Indexes (PPI) » Turnkey LIFO Solutions & Software (lifopro.com)
The BLS article regarding the new preliminary index release procedures can be found here: https://www.bls.gov/ppi/notices/2021/ppi-to-publish-interim-index-values-to-3-decimal-places.htm.
What this means to auditors who are LIFOPro clients is that when they trace preliminary PPI to the BLS source data, they need to refer to the PPI Detailed Report for the month the indexes are first published. For example, October preliminary indexes used in the LIFO-PRO software will need to be traced to the first set of preliminary indexes released in the October PPI Detailed Report that would published in November.
Learn More At Our IPIC LIFO Resources Page