The prices of building materials generally increased in June, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics. For the second consecutive month, softwood lumber (+4.0%) led the way, followed by oriented strand board (+2.2%, not seasonally adjusted). Similarly, the indexes for ready-mix concrete (-0.3%) and gypsum products (-0.6%) both declined for the second month straight, and the aggregate index for goods inputs to residential construction (+0.7%) edged higher.

The price index for residential construction inputs (goods) has increased each of the last six months. The index has already risen 5.4% in 2018, more than quadrupling the year-to-date increase at this time in 2017 (see above). Since January 2017, the index for prices paid for goods inputs to residential construction has only declined twice—in May and December of 2017—each time falling just 0.1%.

The June PPI release continued to capture increases in prices paid for softwood lumber. The index for softwood lumber has increased every month but April in 2018. As prices have receded slightly over the last month, July’s PPI report will likely show a small decrease in the index for softwood lumber. Even after accounting for the most recent price movements, the average price paid for softwood lumber in 2018 remains the highest on record according to Random Lengths data—22.5% above the prior record set in 1997.

The 2.2% increase in oriented strand board (OSB) prices follows May’s 4.7% gain and represents the fifth consecutive monthly increase. Over the past 18 months, the index for OSB prices has fallen only four times. After a three-month downward trend in late 2017, OSB prices have risen 29.1% over the past five months, according to BLS.

Due to methodology, OSB and softwood lumber data in the PPI can lag market conditions.

Two important factors drive disparities between price changes builders have experienced and the PPI index changes:

1. The producer price index tracks prices paid by wholesalers, distributers, and retailers rather than what those businesses charge customers.

2. The index does not include prices paid for Canadian products as it does not include imports (just as the consumer price index does not reflect prices paid for exports).

The index for ready-mix concrete (RMC) prices fell (-0.6%) for the second month in a row after increasing in 10 of the preceding 11 months (seasonally adjusted). After an uncharacteristically large monthly increase in March—when the index rose 3.3%–monthly price changes have been much more in line with the ten-year average. Since the end of the Great Recession, the RMC price index (SA) has increased 0.2% each month, on average.

BLS also reported that prices paid for gypsum products declined in June (-0.6%, seasonally adjusted). This is the first time since May-June 2016 that gypsum prices have declined in consecutive months. Gypsum prices are essentially unchanged since December 2017, thanks in large part to 2.0% and 2.6% decreases in January and May, respectively.

Tags: construction costs, Gypsum, inflation, osb, ppi, producer price index, producer prices, ready-mix concrete, softwood lumber