Bylt: Real Time Construction News & Market Data
Construction Everyday. Real Time News and AEC Industry Market Data. Powerful News For The Architectural, Engineering & Construction Industries.

What Is Driving Inflation in the US? Key Facts From the July 2021 Price Index Reports

Photo by Brian Stalter on Unsplash

On Thursday, August 12, the US Bureau of Labor Statistics published its Consumer Price Index (CPI) and Producer Price Index (PPI) reports for July 2021. The high inflation currently experienced in the US is not evenly distributed among all products and services. The latest price increases can be attributed in great part to the energy industry, especially fossil fuels, and this has affected energy-intensive sectors like transportation and steel production.

There is also a combination of high demand for certain products and services, precisely when global supply chains are facing disruption. Low interest rates are stimulating construction, and the price of some materials has increased drastically in a 12-month period. Between July 2020 and July 2021, the price index increased by +45.2% for lumber, and +89.2% for iron and steel. Supply chains are also under pressure from the growth of e-commerce, which depends on warehousing and transportation services.

Over a 12-month period, the Producer Price Index was up by 19.8% for all commodities, and +20.7% for industrial commodities in particular. Fuels and related products are up by +43.4%, lumber and wood products are up by +32.5%, and metal products are up by +40.7%.

Consumer Price Index Report: Key Takeaways

The CPI for all urban customers increased by 5.4% during the last 12 months, 0.9% in June alone, and 0.5% in July. The energy index grew by 1.6% in July, and the gasoline index in particular increased by 2.4%. The following table summarizes some key CPI increases for energy and vehicles between July 2020 and July 2021:

Product / Service CategoryCPI Change, July 2020 – July 2021
Energy (Total)+23.8%
Energy commodities
-Gasoline (all types)
-Fuel oil (1)
+41.2%
+41.8%
+39.1%
Energy services
-Electricity
-Utility (piped) gas service
+7.2%
+4.0%
+19.0%
New vehicles+6.4%
Used cars and trucks+41.7%
Source: US Bureau of Labor Statistics

When comparing price indexes for utility services, natural gas has been affected much more than electricity. Natural gas was up by 2.2% in July, and 1.7% in May and June. On the other hand, electricity increased by only 0.4% in July, after having dropped by -0.3% in June.

The CPI only covers the consumption side, but the PPI provides a better picture of how costs are broken down from the suppliers’ point of view.

Producer Price Index Report: Key Takeaways

The latest PPI report reflects the price hikes that have affected energy products, logistics services, and key materials used in construction and manufacturing. The final demand index was up by 1.0% in July, and 7.8% for the last 12 months.

  • The index for final demand services increased by 1.1% in July, and this represents the largest monthly increase since December 2009, when the index was first calculated. The price increase is being driven by trade service margins, which are up by 1.7%. In particular, warehousing and transportation services were up by 2.7% in July alone.
  • Just like in the CPI report, the index increase for final demand goods is being driven by energy. The general index for goods increased by 0.6% in July, but the energy index was up by 2.6%.

Over a 12-month period, the final demand index increased by 33.4% for energy, and 11.8% for transportation and warehousing. The construction index increased by 4.5% overall; 4.7% in the private sector, and 4.0% in the government sector.

The impact of energy prices is also evident when analyzing goods and services for intermediate demand. Key materials for manufacturing and construction have also been affected by major price hikes, which are reflected in their PPI.

CategoryJuly 2021 Increase12-Month Increase
Processed goods, intermediate demand+1.7%+22.9%
Unprocessed goods, intermediate demand+1.4%+55.0%
Services, intermediate demand+1.0%+9.2%
Source: US Bureau of Labor Statistics

Excluding food and energy, the processed materials index was up by 1.6% in July, while the energy goods index was up by 4.0%. The 22.9% PPI increase for processed goods over 12 months is the highest reported since February 1975 (+23.6%). In the case of unprocessed goods, energy is driving price increases with a 6.5% index increase, and natural gas was up by 13.5% in a single month.

In particular, the materials and components for manufacturing index is up by 25.5% from July 2020 to July 2021, while materials and components for construction are up by 20.4%.

Below we will summarize the 12-month PPI increases for selected goods and services, including those that are relevant for the construction industry and the building sector.

Processed goods for intermediate demand (+22.9%)

  • LPG +102.6%
  • Commercial natural gas +24.7%
  • Industrial natural gas +41.1%
  • Natural gas sold to utilities +72.3%
  • Gasoline +78.0%
  • #2 diesel fuel +81.9%
  • Asphalt +57.1%
  • Softwood lumber +45.0%
  • Hardwood lumber +45.8%
  • Plywood +102.8%
  • Steel mill products +108.6%
  • Nonferrous wire and cable +31.5%
  • Fabricated structural metal products +28.8%
  • Concrete products +4.5%

Unprocessed goods for intermediate demand (+55%)

  • Natural gas +146.7%
  • Crude petroleum +102.9%
  • Construction sand, gravel, crushed stone +4.1%
  • Iron ores +23.7%

Services for intermediate demand (+9.2%)

  • Machinery and equipment parts and supplies wholesaling +17.9%
  • Building materials, paint, and hardware wholesaling +11.3%
  • Metals, minerals, and ores wholesaling +90.2%
  • Hardware, building material, and supplies retailing +55.9%
  • Truck transportation of freight +13.8%
  • Arrangement of freight and cargo +68.2%
  • Construction +4.9%

The impact of energy prices is evident, from both the consumption and the production side. Logistics services are affected due to their dependence on fossil fuels, combined with several supply chain disruptions in recent months. Construction materials are also affected by a combination of factors: high demand after low interest rates have stimulated construction, their dependence on transportation services to reach projects, and of course the high energy input during the production stage.

Source US Bureau of Labor Statistics

- Advertisement -

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More