Each month the Bureau of Labor Statistics, (BLS) issues a report on price changes on pretty much everything you could think of. For all commodities, the producer prices index (PPI), was up 0.4% in October, a bit higher than analysts’ expectations. On a 12 month year on year, (y/y) comparison, the all commodities PPI rose 4.0%. The all commodities index has moved higher in each of the last 11 months on a y/y basis. Goods prices rose 0.3%. Excluding food and energy, core goods prices increased 0.3%. Services prices gained 0.5% in October. The Federal Reserve is closely monitoring price inflation data to assess whether another rate hike is needed in 2017.
Figure 1 shows the 3MMA, materials and components PPI for construction from 2000 to present. The material and construction components PPI increased by +0.6% over three months, +1.6% over six months, +2.6% over 12 months and by +3.7% over a 24 month interval. On a rolling 12 month basis, the material and construction component PPI has advanced for 16 consecutive months.
Figure 2 shows the 3MMA, material and components for non-residential construction PPI from 2000 to present. The non-residential construction PPI rose increased by +1.1% over three months, +2.3% over six months, +3.6% over 12 months and by +3.4% over a 24 month timeframe. The non-residential construction PPI has been increasing at faster clip than the overall commodities index over the past 12 months. On a rolling 12 month basis, the material and construction component PPI has increased in each of the past 12 months.
Table 1 charts construction steels and its competing materials. The overall number for all materials and components of construction was up 0.6% over the past three months and up 2.6% y/y. According to the BLS, structural steel shapes prices are moving-up, advancing 1.3% over 3 months and by 9.3% y/y. The PPI for pipe, tube and hollow structural shapes fell a fraction, (-0.2%) over 3 months, but was up 7.2% y/y. The PPI for fabricated steel for non-residential construction fell 1.4% over three months, but was higher by 3.1% y/y. Fabricated structural steel for bridges was down 0.7% over the last three months but was higher by 3.8% over 12 months. Fabricated bar joist and fabricated rebar, (grouped together in one category) behaved in a similar fashion, falling 1.2% over 3 months but rising 4.0% on a y/y comparison. Prestressed concrete bridge beams bucked the trend, rising 0.1% over the near term and by 5.3% when compared to October of 2016. The PPI for non-residential structures moved-up 1.1%, 3 months y/y and by 3.6% on a y/y comparison. Commercial building exhibited the strongest price gains, rising 0.9% over three months and by 3.5% over 12 months.
Overall, commodity price inflation continues to remain low, puzzling many at the Fed. In a recent statement the Fed mentioned that price movement were “generally modest” suggested that a December rate hike may not be a forgone conclusion.
At Gerdau, we monitor the PPI which is issued monthly from the Bureau of Labor Statistics because our past analysis has led us to believe that the BLS PPI numbers measure-up to real-world pricing. We feel it is important for us and our customers to know where we are pricing-wise relative to history and how we stack-up against competing materials.