Early 2004 prices surge will ease with inflation

Early this year, the steep price rises for construction materials used in nonresidential buildings hit contractors even as market activity (net of inflation) was declining slightly. The usual price surge that accompanies a stronger market is still ahead, probably beginning at the end of the year and persisting for several years.

The current spike in prices was set off when materials suppliers were unprepared for higher demand coming from the soaring residential market and abruptly higher worldwide demand by manufacturers for the same materials. Prices rose to ration short supplies until production and distribution could react to higher demand. There is no worldwide shortage of lumber, steel, cement, or oil.

While materials spot market prices have already retreated from the brief peak levels reached in the spring, most of the recent price rise will remain as a one-time adjustment from a weak demand to a strong demand market. Nonetheless, the quarterly pace of inflation will quickly subside from over 4% in the spring to near 1% by the end of the year.