Construction materials price inflation continues to increase faster than overall inflation although inflation weakened in both indexes in February, according to Jim Haughey, chief economist for Norcross, Ga.-based Reed Construction Data. The economy-wide Producer Price Index fell 0.6%, almost entirely due to a drop in oil prices. The materials price index rose 0.1%. A 10% drop in diesel prices and an 8% fall in non-ferrous metal prices, the only significant price declines in February, almost completely offset sharp rises in asphalt, lumber, and plywood prices and smaller increases in most metal and concrete product prices. The drop in diesel prices will be reversed in March because diesel prices have already increased $0.18/gal. between the February and March price survey weeks, says Haughey.
The materials price index has increased 1.5% in the last three months, according to Haughey. This is about a 6% annual pace which is the expected trend well into 2011.
The significant prices increases in February were 10.2% for asphalt, 7.5% for softwood lumber, 5.6% for plastic resin, and 5.1% for softwood plywood, continues Haughey. More asphalt price increases have been announced since the February price survey week. Lumber prices have been steady since early February. The current price level is consistent with balanced market demand and supply. Prices are likely to cycle about the current level this year with no sustained move in either direction. Similarly, the February rise in plastic resin prices is a periodic adjustment to higher oil prices and does not signal continuing price rises in the coming months.
Some small price increases in February could be the beginning of sustained price increases over many months. Gypsum product prices were up 0.2% but double-digit price rises were announced by several suppliers for the next few months. Construction equipment prices fell 0.2% in February and are 0.4% below a year ago. However, equipment rental rates jumped an outsized 1.5%. This may signal that rental houses see enough demand increase or cuts in their inventory to begin regaining the margins lost over the last few years.
The subdued inflation across the whole economy gives the Federal Reserve Board more time to keep interest rates low before they begin to withdraw the emergency liquidity pumped into the economy in late 2008. This is the most positive news in the February price report.
To read the full report, visit Reed Construction Data's Web site.