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Construction materials prices rising faster than inflation

October 27, 2017
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Construction input prices rose yet again in September, according to an analysis of data released by the Bureau of Labor Statistics.

Nonresidential construction input prices rose 0.8 percent in September and 4.3 percent compared to this time last year.

Overall, construction materials prices rose 0.8 percent over the previous month and 4.5 percent on a year-over-year basis, about three times as fast as U.S. inflation.

The construction material experiencing the largest monthly price gain is nonferrous wire and cable (3 percent), while the price of crude petroleum (13.9 percent) has risen fastest on a year-over-year basis. Only three of 11 construction categories declined this month: natural gas (minus-4 percent), softwood lumber (minus-0.9 percent) and unprocessed energy materials (minus-0.8 percent).

A number of forces have aligned to produce meaningful increases in construction materials prices. Judging by recent hiring patterns, many contractors continue to be busy and have healthy project backlog. The result is an increase in demand for materials.

Recent storms also have likely contributed to rising materials prices. Given that rebuilding efforts are ongoing, this is likely to have some influence over materials prices for months to come. The ongoing synchronized global economic recovery is likely to produce at least stable materials prices during the months ahead. Moreover, global commodity prices have firmed, in part because construction activity in China is expanding once again. The result is oil prices hovering around $50/barrel and natural gas prices above $3 per million BTU.

The International Monetary Fund recently upgraded its outlook for global growth both for 2017 and 2018. The current year is setting up to be the best year for global expansion since 2014, and next year may be the best year since 2011. Growing worldwide optimism can be expected to translate into stable-to-rising commodity and construction materials prices.

Additionally, there was a period during which the U.S. dollar was weakening. That period has ended, but input prices in September likely were influenced by then-prevailing currency dynamics. A trade dispute between the U.S. and Canada also helped push softwood lumber prices higher, though the price slipped a bit in September.

Anirban Basu is chief economist with Associated Builders and Contractors.

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