Construction materials costs jumped 2.1% in March from February to 6.5% above a last March. Most of the increase was due to soaring metals diesel prices. The current round of steel price increases hit the price index in March, accompanied by a jump in aluminum prices. Non-ferrous metal prices continue to rise rapidly.

Steel pipe prices rose 5.2% in March. Structural steel prices increased 2.5%. Non-ferrous pipe prices soared 8.7%, aluminum extrusion prices increased 5.2% and diesel pump prices jumped 24%. The prices for cement and concrete products as well as lumber prices were about steady with some items posting a price cut.

The surge in metal prices is the expected consequence of recently very low inventories, the falling $US and double-digit demand growth elsewhere in the world. The diesel price surge resulted from the same factors plus higher environmentally mandated production and distribution costs. The pace of price increases will ebb in April or May for both metals and diesel but he price tags will keep rising, especially for metals, well into 2008. Both commodities should be in the down phase of their price cycles by the end of the year. However, little pullback should be expected from current price levels.

The impact of rising costs on inflation is approximately proportional to the share of metal and diesel in the bill of materials for each project. Homebuilders experienced only a 1.0% increase in materials cost in March from February. The price index for single family materials is up only 3.3% from last March. But highway contractors saw a 4.0% price rise in March and now paying12.8% more for materials than a year ago.

Higher materials inflation means that the construction spending and starts data in current dollars is weaker than it first appears to be.

Construction Materials Inflation – January 2008

Source: Producer Price Index, Bureau of Labor Statistics,
US Department of Labor, Federal Reserve Board, Census Bureau