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What's happening to building material prices ?
Friday, 24 July 2009Building material prices are still increasing. According to the Australian Bureau of Statistics (ABS) data published this week many common building materials are still increasing faster than inflation. These include bricks, sand, plaster, insulation, fibre cement and timber windows.
The exceptions are steel and oil based products and electrical cable which have well and truly fallen from their 2008 highs. After rising 4.5% since June 08 concrete prices are now flattening.
This week has been a big week for publication of official price data with publication of the ABS Consumer Price index and Producer Price index. Having become used to inflating prices over the last few years it is interesting to see where there are falling prices in some sectors of the economy.
Starting with the most basic level of inflation itself, the consumer price index (CPI) increased 0.5% in the June quarter, and through the year by 1.5%. “The global financial crisis has put an end to inflation” you may think. However the figures were of some concern to economists and Treasury official who also agonise over measures of “underlying” inflation or “trimmed means” in which highly volatile items are stripped out. This ensures that seasonal price changes or one off price jumps and falls are disregarded to show the underlying price pressures in the economy.
So far underlying inflation by Treasury’s “trimmed mean” measures has only fallen to 3.6% for the year ended June 2009, from its peak of 4.6% for the year ended September 08. This shows that underlying inflation in the economy is still alive and kicking.
The low annual CPI result of 1.5% (which includes all of the volatile and seasonal stuff) is explained by lower petrol prices, lower seasonal food prices and lower financial deposit and loan costs, all of which are essentially one off changes.
Other prices are still increasing. In particular the cost of rates and utilities – electricity, gas, council rates, water and sewerage are increasing at well above inflation rates. The following chart shows some of the big movers up and down in the CPI over twelve months to June 09. The result for women’s shoes may come as a relief to many.
  Some of the bigger movers in the CPI |
Moving to the “materials used in house building index” there are also some big movers. The following chart shows price changes in the last quarter (March to June 09).
 Some building materials still increased over the last quarter. |
It is clear that most building products have not fallen since this time last year. Concrete, sand, plaster, and timber products all increased more than general inflation during the year. However the data for the current quarter shows that concrete prices are now stable. Bricks, fibre cement, and insulation are all still increasing. No doubt the government’s stimulus package will see insulation continue to climb.
Most notable are the steel products where large year on year increases from June 08 to June 09 are shown, however the quarterly data clearly shows that costs have turned down. A steel price explosion was the big news of 2008 and was responsible for a substantial proportion of the construction cost increases that occurred in 2008, particularly in reinforcement and structural steel.
I’m confident that the next release of ABS data will show even bigger falls in these items which peaked in the third quarter of 2008 and have since fallen back. For example reinforcement prices increased by around 70% during 2008 and are now back to $1300 per tonne which is close to January 2008 levels.
Global steel prices (Source CRUSPI) show in grisly detail the journey taken by steel during 2008 and into 2009.
 Steel's grisly journey in 2008 (CRUSPI) |
In
Ominously global steel prices have now turned, with prices up 12% since bottoming in May. The Chinese stimulus package is now boosting the demand for steel, after severe cutbacks early in 2009.
By Gary Emmett
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