Posted on February - 21 - 2011
Construction Materials Price Index Jumps 0.9% in January
Commodity inflation continues at a high pace in the US economy, including construction materials costs, and will persist in 2011. Construction materials prices rose 0.9% in January to 5.0% above the year ago level. This is the second consecutive month to month 0.9% rise in construction materials cost. Across the whole economy, prices increased 0.8% in January for after a 1.1% rise the previous month. Final wholesale prices were 3.7% higher than a year ago driven by a 26% jump in crude material prices, mostly for food, energy and metals.
World economic growth, which reached 4.2% in 2010, is the key driver of higher commodity prices. Growth may be marginally lower in 2011 but still high enough to keep upward pressure on commodity prices. The exchange value of the $US has been steady for several months and has not contributed to recent price surge although it likely resume depreciation later this year. Instead, credit the ongoing surge in commodity prices to soaring worldwide manufacturing demand for metals and the usual delayed response of suppliers), poor harvests, more meat consumption in developing countries and the diversion of grain and sugar harvests to ethanol.
So far, very little of the higher prices at the wholesale level have reached consumer prices, or, for construction, final project prices. But the inevitable pass through to final products will begin soon. Total project cost for buildings tracked by the Bureau of Labor Statistics jumped significantly in January, including a 1.0% month to month rise in office building cost.
Plywood, lumber and diesel prices all increased more than 3% in January from December. Steel product price increases were in the 2% range but nonferrous product prices dropped to a 1.0% monthly pace. International price pressure has not yet reached the concrete market because US cement imports remain very low in a depressed construction market. Cement prices dipped 0.3%, ready mix prices were steady and concrete product prices were only slightly higher. Foreign price pressure4 will not reach the US concrete market until next year.
The commodity prices surge is not yet over. Steel scrap prices jumped 14% in January. Diesel prices increased $0.12 from the January to the February price survey week. Lumber future prices increased 3% over the same period. Commodity price spikes typically last 8-10 months. This one has a few months left.
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