Building Materials Prices Continue to Climb

Inflation in prices received by producers (prior to sales to consumers) held steady in August after a striking 0.4 percent decline in July. The flat reading was the result of a 0.1 percent increase in prices for services combined with a 0.4 percent drop in goods prices, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics (more weight is placed on services, in line with its share of the economy relative to goods). Final demand prices for core goods (i.e. goods excluding food and energy) inched up 0.1 percent.

In contrast to the steady overall index, prices of key building materials were anything but level. OSB prices rose sharply (+1.5 percent), continuing a six-month, upward trend. The producer price of OSB has increased by 8.7 percent over that period. Gypsum prices rose by 0.2 percent as the price of ready-mix concrete rose modestly (+0.1 percent).

Unsurprisingly, given the net change of zero, the report showed mixed signals. Services prices were kept steady by opposing forces from services less trade, transportation, and warehousing (which increased 0.5 percent) and trade services (which fell 0.6 percent). This marked the second consecutive month that the trade index fell and a cumulative two-month decline of nearly 2 percent. The product detail showed a net decline in prices for real estate services of roughly 3 percent in August.

Thirty percent of the decrease in prices for final demand goods was attributable to a 3.6 percent drop in prices for meats and energy products. These declines were partially offset by increases in the pharmaceuticals industry.

Softwood lumber prices rose relatively sharply (+1.5 percent) in August following a July increase (+0.4 percent). Although the U.S. dollar remains relatively strong against the Canadian dollar, it has declined to July 2015 levels and all market indicators point to a continued narrowing of the currency advantage until 2017. This is of particular importance as a large percentage of domestically consumed softwood lumber is purchased from Canadian producers.

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