Commodity price surge eases

The steep price increases for construction materials that occurred earlier this year are largely subsided, but prices generally will not retreat to where they were in late 2003. This was the price adjustment that always happens about nine months into an economic expansion. Commodity prices abruptly change as suppliers of commodities sold in world wide markets stop discounting to move surplus inventory. Instead, buyers offer premiums to assure that they get adequate supplies. Price increases will continue into 2006, but the pace will slow from 13% a year to 2–3%.

The cost of materials for nonresidential construction soared 5.8% from January through June. While materials inflation eased substantially in June, most contract prices held at least at the May level, although many spot prices declined well below earlier headline levels. Recent availability problems with steel, framing lumber panels, and ready-mix will improve in the last half of 2004, but are likely to gradually worsen again next year.