Stay Informed on Inflation

Any independent boxmaker who keeps even a casual eye on inflation has probably heard of the Producer Price Index (PPI), which is released monthly by the U.S. Bureau of Labor Statistics (BLS). An increase in the index compared to a prior period means that prices have risen and that inflation has occurred. Similarly, a declining index signals deflation over the measurement period. As the chart at right indicates, the PPI has declined relative to the same month of the prior year every month during 2015. This is in contrast to the Federal Reserve Board’s policy target of inflation increasing at a 2 percent annual rate.

The overall PPI for December 2015 was 1.0 percent below prior-year data, meaning the prices received for goods and services sold to ultimate consumers declined by 1 percent last year.

2015 Price Change—Regional Industrial Electric Power

In addition to this top-line number, the BLS releases monthly PPIs for more than 10,000 individual products and groups of products based on more than 100,000 price quotations received confidentially from statistically sampled cooperating companies. Mining this data provides insight for independent boxmakers who find it important to know whether their customers’ prices are increasing or decreasing. This article will take a look at some of the products and industries most relevant to independent box converters.

Prices for the same commodity can vary significantly among regions of the country. One important example of this that affects boxmaker competitiveness is the cost of industrial electric power. The table at left shows how much that inflation component (industrial electricity prices) changed in each major region of the country last year.

Regional prices were affected by a number of factors, including supply availability and additions, input energy costs, and demand patterns influenced by regional economic activity, weather, and other factors. Regional price changes varied from a 23.5 percent increase in the Mid-Atlantic States to an 8.9 percent decline in the West South Central region, a swing of more than 32 percentage points, even though the U.S. average price for industrial electricity increased by only 0.4 percent.

A key component of knowing your customer is understanding what conditions are like in their businesses. Price changes for the products they supply to their customers in boxes provided by independent converters is a key component of that conversation. The table on Page 6 lists the 2015 change in average prices for manufacturing industries that consume significant amounts of corrugated and solid fiber packaging.

2015 Producer Price Inflation—Selected Industries

Compared to overall producer price inflation of –1.0 percent for 2015, the wide range of price changes by industries that consume lots of packaging is remarkable. Food manufacturing product prices dropped by 6.5 percent last year—six times as much as overall inflation and significantly more than the 4.3 percent drop in prices of all manufactured goods. The drop in manufactured goods prices was influenced, in part, by declining prices for manufactured goods exports caused by the rapid strengthening of the U.S. dollar against most trading partners’ currencies last year.

2015 Producer Price Inflation—Corrugated and Solid Fiber Box Manufacturing

The sharply falling prices of farm products and energy costs last year also contributed to the decline in food manufacturing prices. While the average prices for produce dropped by 22 percent last year, the prices for downstream manufacturers of frozen, canned and dried fruit, and vegetable products held firm.

Within categories, there were also large swings last year. In the dairy category, producer sales prices for packaged fresh skim milk declined by 22.8 percent, while the price for creamery butter rose by 18 percent.

In the beverage category, compared to a solid 2.8 percent overall price gain, carbonated soft drinks advanced by 4.3 percent, while bottled water prices dropped by 3.5 percent.

For independent boxmakers who want to know current pricing conditions in their customers’ businesses, the monthly PPI release makes for interesting reading. This detail can be found by following the links for the Producer Price Index on www.bls.gov.

The detailed information in the monthly PPI Report is also useful to evaluate price changes in the corrugated industry and in industries that compete directly with corrugated and solid fiber box packaging. The table below shows the PPI results for major sectors of the corrugated and solid fiber manufacturing businesses.

Again, notice the considerable variance between the overall inflation of -0.5 percent in this sector, which came close to matching the headline PPI inflation decrease of 1.0 percent last year. Boxes shipped to food and beverage producers held steady, but those shipped to packagers of paper and allied products like office paper and tissue products declined by 1.4 percent. Corrugated sheet sales from corrugator operators to converting box plants declined by 1.2 percent last year, according to the BLS.

Lastly, the PPI detailed tables provide insight into how national average corrugated packaging prices changed during 2015 compared to competitive packaging. Plastic packaging prices declined by a much larger 4.5 percent last year, reflecting lower resin prices. Plastic film prices decreased by an even greater 6.0 percent.

Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.