Construction Material Prices Rise for First Time in Nine Months

by Jonathan McGaha | April 12, 2016 12:00 am

Construction input prices rose on a monthly basis in March for the first time in nine months according to an analysis of the Bureau of Labor Statistics[1] (BLS) Producer Price Index[2] released today by Associated Builders and Contractors[3] (ABC). Input prices expanded 0.9 percent on a monthly basis in March but are still down 3.4 percent on a year-over-year basis.

Nonresidential construction input prices behaved similarly, expanding 1 percent for the month but down 3.5 percent from a year ago. The monthly price gain was largely driven by crude petroleum, which expanded 40.7 percent for the month, the largest increase since BLS began tracking the series in August 1991. Despite the large monthly gain, crude petroleum prices are still down 26 percent from March 2015.

“Despite the rather profound percentage gain in oil prices and the overall nonresidential construction material price increase, rapid material price inflation remains unlikely going forward,” said ABC Chief Economist Anirban Basu. “There are a number of reasons for this, but perhaps the most important is the ongoing sluggishness of the global economy. Though we just entered the second quarter, the International Monetary Fund has already downgraded its outlook for current year global growth twice. World output is only expected to expand 3.2 percent this year.

“Meanwhile, central banks in much of the world continue to take steps to fight off deflation and a number of oil producing nations have either announced expected reductions in production and/or are actively seeking to enter agreements that freeze production,” said Basu. “These occurrences have helped to stabilize a number of commodity prices, including oil and iron ore. However, there are no guarantees that meaningful production cut agreements will be reached and faithfully implemented by oil producers. While global oil production growth is likely to slow, demand will continue to be weak, implying an uncertain price trajectory.”

Seven key input prices rose in February on a monthly basis:

• Crude petroleum prices expanded 40.7 percent from February 2016, but are down 26 percent from March 2015.
• Unprocessed energy material prices were up 6.1 percent on a monthly basis, but fell 24.1 percent on a year ago basis.
• Prices for steel mill products increased 0.4 percent on a monthly basis, but are down 15.8 percent on a yearly basis.
• Nonferrous wire and cable prices expanded 2.2 percent on a monthly basis, but fell 5.9 percent on a yearly basis.
• Iron and steel prices rose 1.6 percent month-over-month, but have declined 14.7 percent year-over-year.
• Softwood lumber prices were up 2.8 percent for the month, but have fallen 1.6 percent from the same time last year.
• Concrete product prices edged up 0.8 percent month-over-month and are up 3 percent year-over-year.

Four key input prices declined on a monthly basis:

• Prices for prepared asphalt, tar, roofing and siding products fell by 1.1 percent from February 2016 and are down 1.3 percent from March 2015.
• Natural gas prices were down 22.2 percent for the month and are down 40.2 percent from the same period one year ago.
• Fabricated structural metal prices products declined 0.1 percent month-over-month and are down 2.4 percent year-over-year.
• Prices for plumbing fixtures and fittings fell 0.3 percent for the month but are up 0.1 percent from the same time last year.

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