Materials price inflation low but rising

Construction materials prices increased at nearly a 1% annual pace in early 2003 after close to a 0.5% gain last year and a small decline in 2001. Commodities, such as asphalt, concrete, aggregates, and stone, have had the most price increase.

This is typical early in an economic expansion. But producer supply constraints have pushed reinforcing steel and gypsum product prices up more than 5% in the last year.

This pattern of price increases has raised materials cost most for heavy construction and least for residential, with nonresidential buildings in between.

In an improving economy, the outlook is for slowly rising inflation for several years, although lower oil prices and steady construction spending should keep inflation closer to 0% than 1% for the remainder of 2003.

The Federal Reserve Board is now promoting inflation to avoid a deflationary recession, so there is now a substantial risk that construction materials inflation will increase to 3% or more beyond 2004.