Producer Price Index Up Modestly, Larger Increase in Building Materials Prices

The Bureau of Labor Statistics (BLS) released August Producer Price Index (PPI) numbers today. The PPI for finished goods rose 0.4% from July, which had risen 0.2%. On a year-over-year basis the index was up a moderate 0.9%. August’s increase was tame in the context of a measure that can have large monthly fluctuations—having risen 0.8% in March and 1.3% in January—and that it is only the second monthly increase following three months of decline.

Most of the August increase came from higher energy prices, with the PPI for energy rising 2.2%, its first monthly increase following four months of decline. Excluding food and energy, the index was up 0.1% for the month and 1.3% from a year earlier.

Building material prices rose 0.2% after falling the previous two months. On a year-over-year basis, they were up 3.6%, but are still down 1.2% from their September 2008 record high. As with the overall PPI, most of the increase was driven by energy prices, with #2 diesel fuel up 5.8% for August and 13.2% from a year earlier. Meanwhile, ever volatile copper and copper products prices rose 6.6% following three months of decline and were up 10.7% from a year earlier.

Lumber and wood products prices, which spiked in the spring due to supply bottlenecks and an uptick in demand from increased home building spurred on by the home buyer tax credit, fell 1.3%, its third consecutive monthly decline. Although lumber prices have now returned to around their December 2009 levels, they are still up 5.1% from their low August 2009 prices. Plywood and OSB, whose prices also spiked in the spring and have since fallen considerably from their recent highs, fell 3.6% and 20.5%, respectively. Nonetheless, they were still up 8.3% and 14.9% from August 2009.

With residential construction in a holding pattern, commercial construction in the doldrums, and worldwide economic growth advancing at a moderate pace, building materials prices should continue to moderate. However, any resurgence in demand could send prices much higher in the short term due to supply bottlenecks as a result of plant closings and other production reductions by producers adjusting to weak demand over the last four years.



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