Construction material prices dip in December

ConDig (12-Jan-18).  Construction material prices edged 0.1% lower in December despite rises in certain energy products and also iron and steel, according to analysis of  Bureau of Labor Statistics data by Associated Builders and Contractors (ABC).

The association’s producer price index (PPI) dipped to 220.4 last month from 220.6 in November. But the index was 5% higher than the same period last year when it was 209.9.

Nonresidential construction materials prices also dipped 0.1% in December, but were up 4.8% from the same period last year.

The drop comes as softwood lumber prices fell 1% in December from the month prior.

This helped offset the impact of rising prices for crude petroleum, which rose 1.8%, and iron and steel prices that increased 1.7%.

“Given stronger global and domestic economic growth, elevated liquidity in international financial markets, burgeoning trade disputes and efforts by certain energy producers to limit supply growth even as prices rise, one would have expected a sharper increase in construction materials prices in December,” said ABC chief economist Anirban Basu.

“The fact that inflation remains contained should be viewed by most contractors as very good news. Not only are many contractors vulnerable to sudden increases in certain materials prices, but faster inflation can trigger higher interest rates, which ultimately reduce the demand for construction services.”

He added that despite December’s reprieve from rising inflationary pressures, many economists expect inflation to become more apparent as 2018 proceeds as recent federal tax cuts boost the economy, which in turn is expected to raise construction starts later this year and into 2019.

“At the same time, growth in Europe and in much of Asia remains solid. India’s economy is expected to expand more than 7 percent this year, and China’s by more than 6 percent. The upshot is that December’s data may come to represent an exception during an increasingly inflationary period,” said Basu.

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