Tax insight

Companies using PPI indexes to compute inflation for LIFO inventory should consider taking action before year-end

Insight
5 minute read
December 04, 2025

What happened?

Many companies use indexes from the Producer Price Index Detailed Report (PPI indexes) published by the Bureau of Labor Statistics (BLS) to compute inflation for last-in, first-out (LIFO) inventory. Due to tariffs, increased demand, and supply chain issues, the PPI indexes may not accurately reflect actual changes in costs for inventory purchased or produced during 2025, which can materially affect tax LIFO results. The BLS also has discontinued over 125 PPI commodity codes (PPI codes), including a few codes that have been widely used by many companies.

Why is it important?

During periods of rising costs, cost of goods sold (COGS) under the LIFO method of accounting for inventory costs generally exceeds COGS under the first-in, first-out (FIFO) method, resulting in lower taxable income as long as quantities of inventory are maintained or increased. If the PPI indexes do not reflect a company’s actual cost changes, then the LIFO inflation may be understated or overstated, affecting taxable income.

Actions to consider

For companies that use PPI indexes to compute inflation for LIFO inventory, it will be necessary to identify different PPI codes to replace any discontinued PPI codes that are no longer available after June 2025 and evaluate how the inflation for existing or replacement PPI codes compares to 2025 internal cost changes for inventory. If the PPI inflation does not accurately measure actual inventory cost changes for 2025, then the company should consider changing to an internal index method.