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June 26, 2007 - High Construction Materials Inflation Continues in May

June 26, 2007
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The current round of construction materials inflation continued in May 2007 with the index up 0.8%, the fourth consecutive increase after nine months of no change.

The current round of construction materials inflation (as set out in the Producer Price Index series of the U.S. Bureau of Labor Statistics) continued in May 2007 with the index up 0.8%, the fourth consecutive increase after nine months of no change. Cement, plywood, plastics and steel all posted outsized increases. The 1.7% month-to-month increase in cement prices and the 3.4% rise in plywood prices signal increased materials demand in the U.S. construction market. The 1.6% steel price increase and the 0.8% rise in plastics prices are partly due to higher world commodity demand, but probably also are a sign of improved U.S. construction materials demand. Retail sales of building materials picked up in May.

Inflation for manufactured products remains tame, except for the tail end of the pass-through from previous metal price increases. Copper scrap prices soared again, with more labor disruptions in Latin American mines. Expect another round of price spikes soon for copper, brass and bronze products.

Homebuilders and their suppliers are still seeing relatively weak prices for their key materials because of the housing collapse. The price index for single-family materials increased only 0.3% in May. Gypsum fell 5.3% and softwood lumber 1.3%. The gap in inflation rates between the housing market and the rest of construction will likely widen a little more in the next few months, but will be closing by the end of the year.

Non-residential contractors had a 1.1% rise in May in the prices of the mix of materials that they use, due to the ongoing rapid gains in non-residential building. However, 1.1% is well above the trend expected for the rest of this year.

Heavy contractors are still experiencing the highest inflation because the mix of materials that they buy has relatively little labor content. Full story >>

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