Energy Costs Push Residential Building

As with the overall Producer Price Index, most of the residential construction materials cost increase was driven by energy prices-for example #2 diesel fuel was up 7.2 percent for the month and 20.3 percent from a year earlier. Courtesy of NAHB

Higher energy prices are the primary force behind increases in building materials prices. October Producer Price Index (PPI) for finished goods rose 0.4 percent from September-the same as it rose in September and August-and was up 4.3 percent on a year-over-year basis.

Most of the October increase came from higher energy prices, with the PPI for energy rising 3.7 percent, its third consecutive monthly increase. Excluding food and energy, the index fell 0.6 percent, its first decline following 11 months of increases, and on a year-over-year basis was up a relatively modest 1.5 percent.

Prices for materials and components for construction were essentially flat in October after falling the four previous months. On a year-over-year basis the index was up 1.9 percent. However, residential building material prices rose 0.4 percent after falling 0.1 percent in September. On a year-over-year basis, they were up 4.1 percent, but are still down 0.9 percent from their September 2008 record high.

Meanwhile, ever volatile copper and copper products prices rose 5.6 percent, their third consecutive monthly increase, and were up 22.3 percent from a year earlier.

Cement prices fell 0.5 percent and were down 6.2 percent from a year earlier. However, concrete products prices were essentially flat for the month and down only 0.4 percent from October 2009. At the same time, ready-mixed concrete prices fell 0.1 percent in October and were down 1 percent from a year earlier.

With residential construction in a holding pattern, commercial construction in the doldrums, and worldwide economic growth advancing at a moderate pace, there would appear to be little room for upward movements in building materials prices. However, higher energy prices are putting pressure on builders' and suppliers' costs.

- Courtesy of NAHB