By Manuel Gutierrez, Consulting Economist to NKBA
Key Takeaways:
- Prices for products used in single-family and multifamily construction show gains of 29% vs. last year
- Lumber has nearly doubled, but the trend appears to be reversing
- Appliance prices are now flat for the year
Following the pattern of heavy consumer price inflation, such as June’s 45% year-over-year increase in gasoline, wholesalers are facing similar challenges. The Producer Price Index (PPI), the overall measure used to gauge price inflation for manufactured or wholesale goods or services, was up a sharp 1.2% for the month of June and 12% over the last 12 months. Wholesalers are dealing with increasingly higher prices for most of the goods they’ve been purchasing from manufacturers.
Construction has been among the hardest hit sectors, with Figure 1 illustrating PPI inflation for residential and nonresidential projects.
Prices for residential construction products have risen 28.3% over the last 12 months — five percentage points higher than the 23.5% increase for non-residential construction.
In both cases, prices began to accelerate in the middle of last year, coinciding with the surge in housing demand.
The dilemma that manufacturers and wholesalers each are facing is whether to keep passing price increases on to consumers, or to take a hit on profit margins.
Although construction prices are up 29% YOY, both lumber and appliance prices are now reversing.
Within the residential sector, price increases for single-family and multifamily construction were almost identical in June: Single-family construction materials rose 29.2% from a year ago, compared to the 29.4% increase for products used to build multifamily houses.
One of the principal causes for the large increases in residential construction prices is lumber, particularly soft lumber, which is heavily used to build new houses. Figure 2 shows the trend in total lumber prices, which in June were nearly double (97.2%) their year-ago levels, although, if there is any silver lining, it is down from May’s 114% YOY increase. Lumber prices are expected to continue to moderate as suppliers are in the process of accelerating the cutting and milling of lumber to meet the strong demand.
Before the pandemic hit, lumber prices were actually falling: From February 2019 to February 2020, they had fallen 0.3%.
The PPI tracks prices for a number of household products, some of which are shown in Figure 3.
Topping the list are Water Heaters, which are up 23% since June 2020. Other popular products that have increased, although not quite as dramatically, are Household Furniture, up 7.3%, Brick & Tile, up 5.6%, and Window Shades, higher by 5%.
The chart shows only one category where prices at the producer level have fallen, and it is a sorely welcomed one. Household Appliances are down ever-so-slightly, by 0.1%, over the course of the past 12 months, after earlier being considerably higher.
