PPI: Energy Prices Ease In October, But Most Residential Building Material Prices Shift Up

An easing in energy prices aided a decrease in the producer price index for finished goods (PPI) in October. The Bureau of Labor Statistics reported a seasonally adjusted 0.3% decline in the PPI in October, driven by a 1.4% (SA) decrease in the prices for finished energy goods. The index for finished goods has fluctuated in recent months, but has shown little change since May following the peak in oil prices. Overall, the PPI is up 5.9% relative to October 2010, which is largely a reflection of the strong growth during the first four months of this year.

Nearly two thirds of the October decline in the energy price index can be attributed to the decrease in the gasoline index, which fell 2.4% (SA). Lower prices for residential natural gas (-3.3%) and home heating oil (-6.0%) also contributed to the decline. Unfortunately, the easing in energy prices is likely to be short-lived. The spot price of oil (West Texas Intermediate) began October at a 12-month low ($79.43 per barrel), but rose strongly through the month (to $92.32 per barrel). This suggests that a strong increase in the energy index can be expected in November, with a consequent rise in the PPI.

The index for consumer foods inched up slightly (+0.1% SA), its fifth consecutive monthly increase. Higher fresh egg (+18%) and poultry (+4.8%) prices were offset by lower red meat (-4.3%), vegetable (-4.2%), fruit (-2.9%), fish (-2.8%) and dairy (-2.7%) prices.

Core PPI, finished goods less food and energy prices, remained unchanged (SA) in October, ending a string of 10-monthly advances. Higher prices for pharmaceuticals (+0.9% SA) and aircraft (+0.8%) offset lower prices for light trucks (-1.6%) and passenger cars (-0.8%).

The composite index of inputs into residential construction declined 0.4% (NSA) in October, after being unchanged (NSA) in September, but it is up 5.9% year-over-year. This month-over-month decline was driven mainly by falling energy prices, with gasoline (-5.0% NSA) and #2 diesel fuel (-2.2%) included in the index. The price index for copper also fell sharply (-8.0% NSA), but the index for most other building materials increased. While many materials experienced only a modest rise (between +0.1% and +0.6%), stronger price increases were observed in the indexes for gypsum (+3.0%), plywood (+3.0%) and asphalt roofing and siding (2.5%).

The rise in gypsum prices in October marks the beginning of a change in pricing strategy by gypsum producers. In late-September and early-October, most large gypsum producers announced that they were shifting to fixed pricing and would cease all job quotes immediately. Several producers also announced a price increase of 35%, effective January 1, 2012. For more details on the increase in gypsum prices and its impact on the housing industry, see the earlier Eye-on-Housing blog, Sharp Rise in Gypsum Prices Likely in New Year.



Tags: , ,

0 replies

Trackbacks

  1. PPI: Energy Prices Ease In October, But Most Residential Building Material Prices Shift Up | Wood on Fire – Topics of Lumber Industry

Leave a Reply

Your email address will not be published. Required fields are marked *