WASHINGTON - "Inflation took a vacation in September for most of the economy but remains a problem for construction materials," said Ken Simonson, chief economist for The Associated General Contractors of America (AGC). Simonson was commenting on the Oct. 17 producer price index (PPI) report from the Bureau of Labor Statistics.

"Plunging petroleum prices drove down the overall producer price index and moderated the increase in the PPI for construction materials and components," Simonson commented. "The PPI for finished goods plunged 1.1 percent for the month, before seasonal adjustment, and was up only 0.9 percent compared to September 2005. But the PPI for construction materials and components rose 0.3 percent, the same as in August, and had a year-over-year increase of 8.1 percent, nine times as much as the overall index."

Home heating oil dropped in price as the index for commercial natural gas rose 3 percent in September, compared with a 1.8 percent gain in August.

"The 12-month increase for most construction inputs was milder than in the August report but still hard for contractors to either absorb or pass on," Simonson observed. "For instance, the PPI for copper and brass mill shapes soared 75 percent from September 2005 to September 2006. Other large gains included asphalt paving mixtures and blocks, 33 percent; steel mill products, 23 percent; gypsum and plastic construction products, 19 percent each; aluminum mill shapes, 14 percent; and concrete products, 9.3 percent.

As hurricane season winds down, however, contractors are primed for relief. "I expect contractors to get good news for the next few months relative to the artificially high post-hurricane prices of last autumn," he said. "At the moment, falling diesel prices are helping contractors," Simonson concluded. "But I expect construction materials costs over the next year to rise at least 6-8 percent, versus 2-4 percent for the overall economy."

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Publication date: 10/30/2006