Construction materials price inflation rose 0.3% in July after a small dip in June due to lower energy prices and a decline in the pace of economic growth. The index is 8.9% higher than a year ago. The 7.1% increase in copper pipe and tube prices was the only significant price rise in July. The small rise in the overall index was driven by the delayed pass through of earlier metal and energy price increases to metal and petrochemical products. Some of the 0.3% monthly price increase was due to the pickup in manufacturing production with resumed orders from Japan as well as available Japanese parts to make products for the US market as Japan continued its recovery from the earthquake and tsunami earlier this year. Manufacturing uses many of the same materials as construction.
Both of these price drivers will be exhausted early in the summer. Pricing will then be dominated by the worldwide slowdown in economic growth early in 2011 and the generous surpluses of both production capacity and reserve labor. A briefly stronger U.S. dollar in response to the Euro debt crisis will also contribute to softening commodity prices for US buyers. The pricing environment will be weak for materials suppliers for the rest of 2011. Little change in the price index is expected, with a few monthly price declines possible. Pricing weakness will extend into 2012 if GDP growth does not rebound to near 2% in the second half of this year.