Although construction prices are still well below year-ago levels, there are signs that the recent uptrend in housing demand, and in domestic demand generally, is causing prices to start to firm.

This view is based on the fact that while the CanaData Construction Price Index in August was down by 6.5% compared to its year ago level, over the past three months it’s only dipped by 1.3%.

As with consumer prices, changes in energy prices have exerted a disproportionate impact on the CanaData Construction Price series. Excluding diesel fuel, the Construction Price Index was off by a more modest 3.7% year over year in August and is up 0.5% since April.

With respect to the commodities components of the Construction Price Index, as already noted, over the past year diesel fuel has exhibited the greatest volatility.Whereas fuel prices are down 39% over the past 12 months, they are up almost 10% over the past three months, and by 1.2% compared to July.

It appears that the gradual firming of housing demand — which has contributed to a moderate pick up in new house construction and an increase in renovation spending — is also having a positive impact on the price of wood-derived building materials. Since April the price of softwood lumber is up by 8.2% while softwood particle board is up by 17.8%.

While wood product prices have moved higher, declines in copper prices have depressed electrical wire and cable prices.

For the remainder of 2009 and into 2010, a further moderate strengthening of residential construction in Canada and evidence of stabilizing housing demand in the U.S should exert gradual upward pressure on residential building materials, including lumber and plywood.

However, pressure on non-residential building materials will likely remain quite muted through mid 2010 given the outlook for weak commercial and industrial construction and despite stronger growth of engineering and institutional spending.