The construction materials price index was unchanged in June, according to the Bureau of Labor Statistics, after rising for eight consecutive months. That rise was 5.2% which is nearly an 8% annual pace. The June pause is temporary although the next few months may also record no change or small declines. Construction materials inflation is much higher than overall inflation in the economy and this will continue at least through 2011.

The June pause was the net of increases for gypsum products, trucks, brick and some concrete and plastics products and declines for lumber, diesel and metals. Metal ore and scrap prices plunged so metal product prices will remain weak for several months. However, diesel prices have been steady through the July PPI survey week so the 5.9% drop in diesel prices will not be repeated in July.

The summer pause in materials price inflation matches the summer slowdown in GDP growth and the summer cutback in construction spending. Domestically, the cause is the ebbing of federal stimulus spending and state and local government cutbacks at the beginning of the new fiscal year. After being very stimulative for a year, the combined impact of all government spending is now nearly neutral, measured by the quarter to quarter change in spending. Internationally, the cause is a parallel slowing of economic growth in Europe and Asia and hence US exports. Europe has turned to austerity programs to trim public budget deficits that threatened a financial crisis. China is again raising credit costs to restrain inflationary over investment in real estate.

The pause in construction materials inflation will be brief. The recent large drops in lumber, metals and energy prices are the downside of short term inventory cycles and are out of step with the longer business cycle. The business cycle is in the expansion phase which puts intense pressure on world commodity prices.

Later this year contractors should expect resumed rapid rises in internationally priced materials, such as metals. Domestically priced materials, such as lumber and assembled products where labor is the principal cost, will also see more inflationary pressure later in the year but this will move the inflation rate only from slightly negative to slightly positive. Prices will stop declining for purchasing and renting construction machinery.