January Inflation Results
Imported inflation for oil, steel and cement pushed contractors' materials costs up 1.3% in January over December after nine months of small, offsetting, monthly price changes. These inflation pressures were strong enough to overcome the continuing slide in materials demand in a weakening construction market.

Inflation Outlook
The price surge in January is expected to be followed by further but much smaller price advances into the spring, especially for steel. Raw materials costs for steel mills are soaring. Scrap prices jumped 17% in January. Iron ore prices for the next year have just been set 65% higher in the annual negotiation between major suppliers and major buyers. Oil prices also rose in February but the consensus outlook still sees gradually falling prices over the rest of 2008. Also, the long decline of the $US is expected to end by midyear bringing some relief on import prices.

Materials costs increased 4.1% from December 2006 to December 2007. Prices are forecast to increase less in the current year, probably about 2.5-3.0%, as the depressing impact of a strengthening $US, still declining real construction spending and slower economic growth outside the US takes hold later in the year. Construction materials price inflation will pick up slightly to 3-4% in 2009.

Oil, Steel and Cement Dominate Price Changes
January's significant price changes included a 1.9%ise in structural steel prices, a 3.2% jump in diesel fuels prices, a 1.2% increase in the cost of aggregates and 0.5-1.0% increases for concrete products. The only significant prices declines were 3.05 for softwood lumber and 2.5% for softwood plywood. Gypsum prices also fell 0.3%, bringing the 12 month decline to over 22%.

Heavy contractors have absorbed the highest prices increases because of their heavy use of materials where prices are set in world markets and that require relatively little processing or manufacturing. Over the last 12 months, materials costs have risen 11.8% for highway contractors, 8.1% for other heavy contractors, 7.6% for nonresidential building contractors and only 2.6% for residential contractors. These differences will widen in the next few months when steel and oil dominate price changes but then begin to narrow later in 2008 and in 2009 when lumber prices stop falling and oil and steel prices stop rising rapidly.