“If we consider what ought to be happening with respect to materials prices, we would expect them to be marching steadily higher,” said Anirban Basu, chief economist, ABC. “After all, the global economic recovery is an increasingly synchronized one. China is on pace to meet growth expectations this year. Europe, Japan, Brazil, Russia, and other nations are experiencing meaningfully better recoveries this year compared to 2016. While some economies, like Great Britain’s and India’s, have stumbled a bit lately, the broader story is one of more rapid global economic growth, driven in large measure by a low interest rate, post-austerity policy environment.

“The world’s improving global economic environment has helped stabilize demand and prices for various commodities,” said Basu. “As a result, we are not observing the sharp declines in input prices that occurred during much of 2014 and 2015. Demand for materials in the U.S. also remains reasonably high, given ongoing momentum in a number of private segments and indications of stable activity among road builders. The fact that asset prices have been rising, including in key global equity markets, has contributed to pushing materials prices higher, with positive wealth effects triggering greater confidence among real estate developers.

“For now, policymakers around the world appear focused on supporting economic growth. While this may ultimately translate into problematic global inflation, for now, inflation remains under control,” continued Basu. “That suggests that accommodative monetary policy will continue to remain in place in much of the world, which will support asset prices, economic growth, and demand for construction materials. While surging construction materials prices are unlikely during the near term, with the exception of areas recently impacted by Hurricanes Harvey and Irma, so, too, are large declines.”

Publication date: 10/20/2017

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