January 27, 2014

Will 2014 be a fourth straight year of mainly flat construction material costs? (Part 1)

Statistics Canada’s overall Industrial Product Price Index (IPPI) has been moving sideways for the past three years. In November 2013 (i.e., the latest measurement), it was +0.1% month-to-month and -1.3% year-over-year.

The IPPI has been designed to capture the prices that producers in Canada receive for their goods as they leave the company’s premises. It does not include additional costs paid by consumers such as indirect taxes (sales taxes), transportation, wholesale and retail costs.

Always published along with the IPPI is the Raw Materials Price Index (RMPI), which has been trending slightly downwards since the first quarter of 2011. The RMPI in November was -4.1% month-to-month and -2.5% year-over-year.

A great number of sub-indices are published as part of the IPPI and RMPI data series. Many of these are either building products themselves or important components in their assembly or manufacturing process (e.g., iron ore that goes into structural steel).

Since neither the IPPI nor RMPI have been showing much upward movement of late, the net effect has been ongoing restraint with respect to construction material costs.

Still, there have been some individual product price movements that have proven more dramatic than others.

Before going into the latest data in detail, however, some shortcomings warrant mention.

Statistics Canada has brought forward the base year for the data to 2010 (from 2002 = 100.0) and revised many of the series to match the North American Product Classification System (NAPCS) in order to achieve conformity with what the U.S. and Mexico are reporting.

In the process of adopting NAPCS, some key construction sub-component series have been abandoned (hopefully temporarily).

Also, the new data presently only goes back to January 2010, although in a special note Statistics Canada says earlier history will soon be made available.

Therefore, the following will not be as comprehensive as desirable, but it will provide some insight into the material cost structure presently in place for project owners and builders.

Since January 2010, the largest percentage increase among the IPPI’s “key aggregates”, as shown in the accompanying table, has been in “petroleum and coal products”, +35.3%.

Almost all of this occurred at the front end, in the first year and a half or so. From November 2011 to the present, the increase has been only 2.6%.

To be continued in Economy at a Glance, Part 2.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

Industrial product price index (IPPI) and raw materials price index (RMPI)

Data source: Statistics Canada (IPPI and RMPI) / Table: CanaData – Reed Construction Data.

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