Increase in Energy Prices Drives Producer Price Index Higher

Inflation in prices received by producers (prior to sales to consumers) rose 0.4 percent in May according to the latest Producer Price Index release by the Bureau of Labor Statistics.  The increase—double that of the 0.2 rise in April—was 60-percent driven by the prices of goods, which climbed 0.7 percent.  The final demand index for services increased by a more modest 0.2 percent.

A 2.8 percent increase in energy prices accounted for over 65 percent of the increased prices for goods.  Final demand prices for core goods (i.e. goods excluding food and energy) increased only 0.3 percent.  Although final demand prices of services posted a net increase, the underlying details were mixed.  Trade services prices increased by 1.2 percent, while prices for final demand services less trade,  transportation, and warehousing and for final demand transportation and warehousing services fell 0.2 percent and 0.6 percent, respectively.

Softwood lumber prices rose 2.2 percent in May, following a 2.7 percent climb in April, reaching their highest reading since January 2015. Though the U.S. dollar (USD) remains relatively strong against the Canadian dollar, it has lost 11 percent of its value relative to the Canadian dollar since January. A strengthening U.S. dollar makes Canadian softwood lumber cheaper to import, alleviating building cost burdens to some extent.

PPI 2016 6 15

After a steep 4.9 percent climb in April, gypsum prices fell 1.1 percent in May, while the price of ready-mix concrete fell (-0.5 percent) for only the fifth time in two and a half years. OSB prices rose for the second consecutive month, posting a 5.9 percent increase.  Over the past two months, OSB prices have risen 10 percent.



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