Building Materials Prices Remain Stable but Diesel Skyrockets 40% in August

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According to the latest Producer Price Index report, the price level of inputs to residential construction less energy (i.e., building materials) ticked up 0.1% in August (not seasonally adjusted).  Prices have also increased 0.2% over the past 12 months as year-over-year price growth has slowed from 4.9% in January 2023 and 14.7% in August 2022. The 12-month increase is the smallest since June 2016.

The Producer Price Index for all final demand goods rose 2.0% in August—the largest monthly increase in over a year. The increase was driven by a 10.5% surge in energy prices propelled by monthly increases in gasoline (+20.0%) and diesel fuel (+41.1%) which account for nearly one-third of the PPI for final demand energy. The surge in diesel fuel prices broke the prior record set in 1990.

The PPI for goods inputs to residential construction, including energy, rose 1.3% in August but is unchanged from one year prior. March 2023 was the last month in which the index had increased.

Gypsum Building Materials

The PPI for gypsum building materials declined for the fifth consecutive month, falling 0.4%. Prices have decreased 0.9% over the past year, marking the first 12-month decline since September 2020. The average 12-month increase this year has been 7.3% over the first eight months in 2023, roughly one-third the 21.0% average over the same period in 2022.

Steel Mill Products

The price of steel mill products (i.e., the raw materials used to make intermediate and finished steel goods) fell 0.5% in August after decreasing 4.7% the month prior (NSA).  Since climbing 12.4% between January and May, prices have declined 5.6%. Steel futures prices suggest that the decrease may be much steeper in September.

The index is 14.8% lower than it stood one year ago and has decreased 27.1% since doubling over the course of 2021.

Softwood Lumber

The PPI for softwood lumber (seasonally adjusted) decreased 5.3% in August—the first monthly decline in three months. The index has fallen by more than half since reaching its record high in May 2021.

Ready-Mix Concrete

Ready-mix concrete (RMC) prices increased 0.6% in August after gaining 0.1% in July. Like gypsum building materials prices, monthly price increases of concrete have slowed substantially in 2023. The PPI for RMC has increased 0.6% per month this year and is up 9.1% over the past year. The year-over-year change is the smallest since May 2022.

Prices increased 1.3% and 0.3% in the West and South, respectively (not seasonally adjusted), and were unchanged in the Northeast and Midwest. Year-over-year, prices have increased the most (+14.2%) in the Midwest, followed by the Northeast (+11.0%), South (+8.0%), and West (+7.7%) regions.

Services

The price index of services inputs (excluding labor) to residential construction increased 0.9% in August after climbing 1.5% in July. The increase was primarily driven by a 4.5% increase in the index for building materials retailers’ gross margins which accounts for nearly one-third of the services inputs PPI. Although the index has increased 9.0%, year-to-date, it is up 17.2% over the past three months.

Freight Prices

Producer prices for the transportation of freight reversed their downward trend in August. The prices of rail, truck, and deep sea transportation of freight rose 0.4%, 1.6%, and 1.8%, respectively. Even after these increases, however, each index level is lower than it was in August 2022.



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2 replies

  1. There’s an error in the first paragraph or the chart. Did prices increase YOY in August by 0.1% or 0.2%? It says a 0.1% gain in the paragraph but 0.2% in the chart.

  2. This article’s report on stable building materials prices but a significant rise in diesel costs highlights the need for adaptable construction loan strategies.

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