After hitting an almost 30-year high of 12.7% year over year in August 2008, construction material price inflation — as measured by CanaData (based on Statistics Canada industrial product price indexes) — slowed to 6.2% in October 2008. This drop is due primarily to sharp declines in prices of petroleum-derived products such as diesel fuel.

To date, the effect of lower oil prices has not led to a decline in oil-based building materials such as those made with asphalt or plastic. However, the combination of lower oil prices and weakening residential and non-residential building suggests that prices for oil-based building materials will soon fall.

The prices of steel scrap (-18.7%), steel reinforcing bars (-3%) and electrical wire and cable (-0.7%) have also declined sharply over the past few months.

As for the lumber price index, it appears that efforts to cut production succeeded in pushing the index up by 6.7% over the past three months. However, this uptrend is likelyunsustainable.

Over the past year, the prices of assembled equipment such as furnaces, appliances and metal doors and sashes remain little changed. However, prices for imported equipment such as heavy machinery and power tools have ratcheted steadily higher, due in part to the recent rapid drop in the value of the Canadian dollar versus the U.S. greenback.

While prices of most domestically assembled construction equipment are likely to remain subdued, the price of imported construction machinery could escalate somewhat, assuming that President-elect Obama implements his infrastructure renewal program.

Looking forward, it appears likely that declining levels of both residential and non-residential construction activity will push construction materials prices, on average, steadily downward through most of 2009 and into 2010.