Area Economy

Price upswing continues for third straight month

June 24, 2016
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Construction input prices expanded by 0.7 percent in May and have now expanded for three consecutive months, according to an analysis of the recently released Bureau of Labor Statistics Producer Price Index.

The rise follows eight consecutive months during which construction input prices fell. Prices remain 3.4 percent below their year-ago level.

Nonresidential construction input prices expanded by 0.9 percent in May but are still 3.5 percent below their year-ago level.

Price gains were largely driven by iron and steel prices and steel mill product prices, which expanded 5.8 percent and 4.6 percent for the month, respectively.

After falling sharply during all of 2015 and into the early months of 2016, an increase in global commodities prices had to happen as markets firmed. While much attention has been given to the recent rise in oil prices to around $50 per barrel, other commodity prices have also experienced resurgence, including iron ore.

That said, the global economy continues to disappoint relative to expectations established at the start of the year. Higher prices may stimulate new rounds of production, including in energy markets, but the implication is that prices are unlikely to rise smoothly or dramatically going forward.

Analyst views regarding the direction of commodity prices diverge wildly. While supply and demand play a role in fashioning commodity prices, so too does the value of the U.S. dollar.

U.S. interest rates remain low and in many cases have been declining. The dollar has correspondingly weakened in recent weeks. Should that continue, commodity price increases could be sharper than we presently anticipate.

Nine out of 11 key input prices expanded or remained unchanged in May on a monthly basis:

  • Crude petroleum: Up 0.6 percent from last month, down 32.5 percent from May 2015.
  • Unprocessed energy material: Up 0.9 percent from last month, down 23.1 percent from May 2015.
  • Steel mill products: Up 4.6 percent from last month, down 5.2 percent from May 2015.
  • Iron and steel: Up 5.8 percent from last month, down 2 percent from May 2015.
  • Softwood lumber: Up 2.2 percent from last month and 6.3 percent from May 2015.
  • Plumbing fixtures and fittings: Up 0.2 percent from last month and 0.3 percent from May 2015.
  • Prepared asphalt and tar and roofing and siding products: Up 0.4 percent from last month and 0.7 percent from May 2015.\
  • Natural gas: Up 2.9 percent for the month, down 23.5 percent from May 2015.
  • Fabricated structural metal: Unchanged from last month, down 1.9 percent from May 2015.

Two key input prices declined on a monthly basis:

  • Nonferrous wire and cable: Down 1.3 percent from last month and 9.2 percent from May 2015.
  • Concrete product: Down 0.1 percent from last month, up 3 percent from May 2015.

Anirban Basu is chief economist for Associated Builders and Contractors.

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