Energy Costs Continue to Push Residential Building Materials Prices Up


Once again, higher energy prices were the primary force behind increases in producer prices and building materials prices.

The Bureau of Labor Statistics (BLS) released December Producer Price Index (PPI) numbers today. Largely propelled by higher energy prices, the PPI for finished goods, which has been rising since June, rose 1.1% from November on a seasonally adjusted basis, the largest increase since January 2010’s 1.3% rise. On a year-over-year basis, the index was up 4.0%. 

The PPI for energy rose 3.7%, its third consecutive monthly increase. Excluding energy, the PPI for finished goods rose 0.5% from November, and 1.8% from December 2009. Excluding food and energy, the PPI rose 0.2%, and on a year-over-year basis was up a relatively modest 1.3%. 

Prices for “Materials and components for construction” rose 0.5% (SA) in December and were up 2.5% 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 4.5% in December. 

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 2.3% (NSA) for the month and 27.6% from a year earlier. Meanwhile, ever volatile copper and copper products prices slowed their rise to 1.4%, their sixth consecutive monthly increase. That still left prices up 20.8% from a year earlier. Cement prices fell 0.1% and were down 5.1% from a year earlier. However, concrete products prices were up a bit for the month (0.2%) and were down only 0.2% from a year earlier. At the same time, ready-mixed concrete prices rose 0.2% in December and were down 1.0% from December 2009. 

Softwood lumber prices, which after a run up in the spring of 2010 fell from June through October, rose strongly in November and December—up 2.2% and 3.4%, respectively. The increases seem to be due to limited supplies as producers have reduced production and to suppliers re-building thin inventories, not due to any significant increase in demand. As of December, softwood lumber prices were up 6.3% from a year earlier. 

With residential construction advancing at a snail’s pace, commercial construction struggling, and worldwide economic growth advancing slowly, there would appear to be little room for upward movements in building materials prices. However, higher energy prices continue to put pressure on builders’ and suppliers’ costs.

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