Economic news is often a “good but bad” reality. For example, inflation finally slowed some, with consumer prices flat between June and July. But that was basically due to a welcome drop in energy prices. But food prices kept growing, as did car expenses and rents.
For industries, the producer price index, or PPI, is frequently a more telling economic impact on them than the consumer price index, or CPI, which is what gets attention as the official inflation number.
The PPI is the business equivalent of the CPI: the prices companies see. Or as the Bureau of Labor Statistics puts it, “The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.”
In July 2022, the year-over-year change in materials and components for construction, excluding capital investment, labor, and imports was 14.8%. That’s the bad news. The good new is that the growth rate is down. April’s PPI for the industry was 20.1%.
Like the CPI’s market basket of goods and services, meaning an ongoing monitoring of what the government thinks people are buying and what they have to pay, the PPI monitors changes over time of the selling prices of goods and services. These are monitored from the seller’s perspective. “Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs,” the BLS notes.
The breakout of PPI for construction was interesting, with materials at 9.3% and components at 19.2%. This would go along with things people in the industry have been saying, that lumber prices, for example, have dropped significantly but many finished components are still more expensive and harder to get.
Final demand construction is a category that tracks price changes for new, maintenance, and repair construction for final demand to ultimate users. “Construction of office buildings is an example of a commodity that would be included in the final demand construction index,” as BLS explains.
Construction for final demand by private capital investment was 25.3%, so investors having construction done for them who feel that prices continue to be crazy high are quite right.
Something to keep in mind about PPI is that, like CPI, it shows growth at a point of time. But seeing lower values for either isn’t like price rollbacks. All the previous price increases remain.