Residential Building Materials Prices Higher Mainly Due to Rising Energy Costs

Higher energy prices continued to play a key role in rising producer prices and building materials prices.

The Bureau of Labor Statistics (BLS) released January Producer Price Index (PPI) numbers today. For the fourth month in a row, higher energy prices were largely responsible the 0.8% seasonally adjusted increase in the PPI for finished goods, which has been rising since June, down a bit from the 0.9% increase in December. On a year-over-year basis, the index was up 3.6%.

The PPI for energy rose 1.8%, its fifth monthly increase over the last six months, down from December’s 2.8% rise. Excluding energy, the PPI for finished goods rose 0.5% from December, and was up 2.1% from January 2010. The PPI for foods, which has been advancing by 0.5% or higher starting in September, rose 0.3% in January, down from 0.8% in December.  Excluding food and energy, the PPI rose 0.5% in January, and on a year-over-year basis was up a relatively modest 1.6%.

Prices for “Materials and components for construction” rose 0.3% (SA) in December and were up 2.8% from a year earlier. However, residential building material prices have generally been rising faster than the materials and components for construction category. On a year-over-year basis, residential building material prices were up 4.3% in January.

As with the overall PPI, most of the residential construction materials cost increase was driven by energy prices—for example #2 diesel fuel was up 3.2% (NSA) for the month and 17.7% from a year earlier. Meanwhile, ever volatile copper and copper products prices rose 2.3%, their seventh consecutive monthly increase, and were up 17.9% from a year earlier.

On the positive side, cement prices fell 0.3% and were down 4.8% from a year earlier. However, concrete products prices were up a bit for the month (0.1%) and were unchanged from a year earlier. At the same time, ready-mixed concrete prices unchanged for the month and were down 0.8% from January 2010. Meanwhile, gypsum prices, which had risen 0.8% in December, fell 3.3% in January, leaving them up on 0.5% from a year earlier.

Softwood lumber prices continued their recent march upwards, rising 3.0% in January after increasing 2.2% and 3.4% in November and December, respectively. The increases seem to be due to limited supplies as producers have reduced production and to suppliers re-building thin inventories. Rising exports to China along with weather disruptions seem to have contributed as well. As of January, softwood lumber prices were up 8.7% from a year earlier.

With residential construction advancing slowly, commercial construction struggling, and the world economy growing modestly, there would appear to be little room for upward movement in most building materials prices. However, higher energy prices continue to put pressure on builders’ and suppliers’ costs.



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