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Growth in the Producer Price Index Slows in May

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The rate of growth in the Producer Price Index has finally begun to show signs of slowing, after seven months of strong growth and eleven consecutive months of increases. The Bureau of Labor Statistics reported that, month-over-month, the PPI for finished goods rose only 0.2 percent (seasonally adjusted) in May, representing a marked deceleration from the gains observed between January and April of this year. Over the past year, the price of finished goods has advanced 7.3 percent (not seasonally adjusted) the largest year-over-year increase for the index since September 2008.

Although still rising, energy prices rose at a more moderate rate of 1.5 percent (seasonally adjusted) in May following five months increasing at a pace of at least 2.5 percent. Gasoline prices, up 2.7 percent, remained the main driver behind the increase in energy price, accounting for about three quarters of the May rise. However, growth has slowed considerably from earlier in the year when gasoline was rising at 6.8 percent (January) and 5.7 percent (March). Countering the rise in gasoline prices was a decline in diesel fuel prices, down 3.8 percent (seasonally adjusted) - following nine months of strong growth.

The composite index of inputs into residential construction rose 0.7 percent (not seasonally adjusted) in May and is up 5.9 percent year-over-year. While energy prices continue to dominate the composite index, the trend in the main building products that make up the index was mixed.

Plastic and asphalt products also rose in May, with a notable increase in asphalt paving and block (+3.3 percent NSA), shingles and coating (+3.3 percent), roofing and siding (+2.7 percent), and plastic construction products (+1.8 percent). These products have experienced only modest wholesale price growth in the past year, up 2.1 percent or less year-over-year in April. The increase in May can be attributed to the pass-through effects of rising input costs, namely the strong increase in oil prices since the beginning of the year.

The lumber and wood products index was little changed, down 0.1 percent in May and lumber prices were down 1.7 percent. Meanwhile, more moderate price changes were observed in plywood (-0.3 percent), millwork (no change) and prefabricated wood buildings and components (+0.1 percent).

Most other building materials experienced either a modest decline or slight rise, reflecting the weak demand still emanating from the struggling housing sector.

- Courtesy of NAHB

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October 20, 2019, 8:12 pm PDT

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