Construction Forecasts

Construction Materials Price Index Rises 0.9% in May

Construction materials price inflation weakened again in May with the month to month price change falling to 0.9% from 1.4% in April and 2.0% in March. Price cuts for diesel fuel, lumber and copper and much lower price rises for steel products account for the slowdown in the materials price index. The flip side of slowing inflation is that abrupt price cuts in price sensitive commodities typically come from reduced demand and not increased supply. Materials price inflation is likely to slow further in June based on price trends for diesel and lumber since the price survey in the second week of May.

The significant price increases in May were gypsum products (4.3%), aluminum (3.3%) and plastics construction products (1.8%). The gypsum price rise is largely due to aggressive pricing to rebuild margins and not to a recent rise in product demand. Further substantial price increases are not likely in the next few months. The aluminum price increase was a slowdown in inflation from earlier this year. This slowdown will probably continue for a few more months. Prices have already dropped for steel and non ferrous metals. The price increase for plastics construction products was a sharp uptick in response to higher oil and natural gas input prices. A few more months of 1% plus inflation are likely following the 4.6% jump in plastic resin prices in May.

The exchange value of the dollar has risen recently with the flare up of the Greek debt crisis which weakened the value of the euro currency. This turnabout could be brief if the crisis subsides with Greek acceptance of an austerity program and the second round of European and IMF loans. Or the rise in the dollar could persist if Greece edges closer to default. In this case, commodity import prices will weaken substantially. The construction materials price index will briefly weaken below the inflation pace in the overall economy. That said, materials buyers should nonetheless expect price inflation in the 5-7% range through 2012, well above inflation in the overall economy.