November 23, 2022

Rising prices for construction materials and freight lead to higher construction costs

Prices for goods used in residential construction rose 1.8% in May and 19.4% year over year, according to the latest Producer Price Index (PPI). Building materials prices rose 36.3% year on year, led by gypsum, steel and softwood lumber.

The price of freight trucking rose 2.9% in May and climbed 25.8% year over year. Prices for intercity and local car transportation increased by 28.2% and 18.4%, respectively, during this period.

Water transport costs have jumped 21.5% in the last two months alone and are up 35.7% in the last 12 months. Prices for rail freight services rose 2.7% in May and have risen 11.7% and 15.4% since May and January 2021, respectively.

The softwood lumber PPI (seasonally adjusted) rose 0.4% in May after falling 15.6% in April. According to data from Random Lengths, the “factory price” for structural lumber has fallen more than 35% since mid-May.

The PPI for most durable goods for a given month is largely based on the prices paid for goods shipped, not ordered, during the month of the survey. Combined with survey timing issues, this can lead to lags with spot market prices, suggesting that a sharp decline in the softwood lumber producer price index could be reflected in the publication next month.

Read more