Producer Price Index Slow to Respond

WASHINGTON - Materials pricing for March is making a dent in construction numbers.

“Red-hot steel prices, combined with record diesel fuel costs, are making construction unaffordable,” said Ken Simonson, chief economist for the Associated General Contractors of America (AGC), referencing the producer price indexes (PPIs) for March as reported by the Bureau of Labor Statistics (BLS). “The PPI for inputs to construction industries materials used in all types of construction plus items consumed by contractors, such as diesel fuel - soared 2.1 percent in March alone.”

According to Simonson, this jump was propelled by a 24 percent increase in diesel fuel costs and a 5.5 percent rise in prices for steel mill products. He predicted that this is not the end of material increases as the Energy Information Administration reported that the average price of highway diesel exceeded the $4 per gallon mark, “a 10-cent increase in the national average just in the past week.”

Although these numbers aren’t ringing clear in the PPI yet, contractors are already paying the new prices being reported, said Simonson.

“Public agencies as well as private owners need to adjust to these realities,” Simonson warned.

“Too many of them are still assuming construction costs are rising no faster than the consumer price index (CPI), when in fact the PPI for construction inputs has gone up 6.5 percent in the past 12 months and 34 percent since steel prices first surged in December 2003. That is more than double the run-up in the CPI.”

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Publication date: 05/12/2008

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