Posts filed under “Inflation”
We have had robust reflation/inflation ever since the Fed took rates down to half century lows, and then left them there for quite a while. Each time I mention this, some dang fool insists its just energy, depsite the evidence that food, commodities, precious metals, heath care insurance, industrial metals, medical care, housing costs, education, etc. are all higher in price than they were.
Today, we add yet another category of goods that hve been going up in price: construction materials.
Ken Simonson, chief economist for The Associated General Contractors of America, issued an analysis this week that compared construction costs over a four-year period from 2001 to 2005 . . .
By September of 2004, steel and copper construction products had soared as much as 62 percent higher than a year earlier.
Overall, construction material cost climbed about 11 percent in the 12 months ended this past September.
What’s on the construction list price increases?
Gypsum products were up 21 percent;
asphalt had climbed 12 percent;
insulation materials rose 11 percent;
lumber up 12 percent;
steel and copper construction products up 62 percent;
PVC plastic up "almost" 100%;
gypsum — double-digit increase;
concrete prices: plus seven percent from 9/03 – 9/04; more than 12% 9/04 – 9/05;
Diesel fuel up more than 50 percent;
Cement: rising prices and spot shortages;
The diesel expenses "hit contractors hard. Not only did they have to pay more to run their own trucks, bulldozers, backhoes, and generators, they also had to pay more for fuel-thirsty materials such as concrete, which burns considerable energy while being mixed and transported in heavy loads to sites."
The only bright spots: Lumber, which thanks to hurricane-downed trees is abundant (and relatively cheap) — and labor, whose costs have risen less than 3%
Construction costs building steam
Contractors’ group says prices for concrete and other materials have soared the past two years.
October 27, 2005: 2:03 PM EDT, CNN/Money staff writer
"A specter from the past has been haunting the stock market lately, and,
as with most specters, the question is whether this one is mostly real
or mostly imaginary.
The specter is inflation, and until recently, many investors thought it
was dead and gone. Lately, if you believe the Federal Reserve, it isn’t
exactly ba-a-a-a-ck, but it is lurking. The Fed’s fear of inflation,
together with its clear intention to keep raising U.S. short-term
interest rates to keep inflation in check, is the main thing that has
prevented the much-awaited fourth-quarter stock rally from commencing . . .
A few weeks ago, I gave Professor James Hamilton grief over his 45 year chart of the 12 month change in CPI (1960 – 2005). The very long chart, IMHO, makes inflation look more modest versus its long history than say a 5 year chart would.
Indeed, the impact of any longer term charts is that they make major events look like ripples; You can barely see the 1987 crash on a long SPX chart, and even 9/11 is hard to spot on a 10 year Nasdaq chart.
Today’s WSJ also uses a long term chart — 35 years of CPI and Core CPI. It presents a case that the core underreports inflation. Note that even during the late 1970s peak of CPI, the Core rate tracked the overall index; In 1972-74, however, the Core lagged the CPI appreciably.
That lag is very analogous to the present BLS reporting, and in my opinion, why the Fed is fighting inflation so aggressively.
Note: I modified the WSJ chart, zooming in on the two periods:<spacer>
click for larger chart
Chart courtesy of WSJ
The entire article is worth reading; I have more excerpts, and the original chart, after the jump.
Specter of Inflation Haunts Dow
While Waiting for Fed’s Fears To Subside, Investors Pull Back, Imperiling an Anticipated Rally
THE WALL STREET JOURNAL, October 24, 2005