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What the Surge In Construction Material Prices Means

May 10, 2021

Anyone who questions whether or not the inflation story is real should look at current material prices.

Key construction inputs such as softwood lumber, iron, steel and diesel fuel have experienced sharp price increases over the course of the COVID-19 pandemic. Softwood lumber leads the pack with prices that have increased a whopping 80% over the past year. This increase is largely due to a surge in residential construction. Iron and steel prices have also increased by more than 20% over the past year.

The injection of massive levels of monetary and fiscal stimulus into the global economy, along with occasional supply chain issues, have produced a nearly 8% rise in construction input prices over the past year. This rapid rise in input prices continues to suppress economic growth in many parts of the world. As vaccinations become more pervasive around the world, additional stimulus is injected into various economies, and the global economy reopens in earnest, the pace of price increases could further accelerate.

It’s Economics 101: As demand increases, scarcity builds and low prices disappear. Eventually, suppliers respond by investing more aggressively in capacity given the pursuit of higher sales amid higher prices, which eventually results in the pendulum swinging back toward lower prices.

But this time the circumstances are slightly different. Because coronavirus vaccine distribution is accelerating, the expectation is that worldwide demand for steel, aluminum, oil and other productive inputs will surge later in 2021. The result could be substantial upward pressure on construction input prices. Some of these dynamics became apparent during the second half of last year but will likely become even more obvious as the global economy recovers in earnest.

On March 12, ABC joined a coalition of construction, housing and real estate organizations in a letter to the commerce secretary to address the price increases of lumber in the U.S. over the past year. Due to a range of issues including decreased production, supply chain woes, tariffs, and wildfires in the U.S., the construction industry has seen significant increases in lumber prices since last spring, threatening jobs and leading to higher project costs. ABC will continue to work with government officials to develop solutions to these significant price increases to protect construction jobs and support critical projects.

ABC has also continuously advocated for the removal of unnecessary and costly steel and aluminum tariffs to help address the historic shortages of readily available and globally-priced steel and aluminum products for the construction industry.

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