“Today's report represents an inflationary shot across the bow,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “For months, economists among others have been predicting the re-emergence of inflationary forces and today's PPI report is consistent with the view that inflation is a part of our near-term future.
“While the monthly increase in PPI was motivated in large part by an increase in energy prices, it is generally thought that monetary policy makers are more focused on core inflation at the wholesale level, which excludes food and energy costs,” said Basu.
“However, the increase in construction material prices will impact core items such as housing costs, a fact of which the Federal Reserve is undoubtedly aware,” said Basu.
“In other words, today's report makes Federal Reserve monetary tightening during the first half of the current year more likely than it had been,” said Basu. “The increase in materials prices is not good news for nonresidential construction contractors hoping for a rebound in commercial and other forms of construction in the near term, since rising materials prices make projects more expensive, unpredictable to bid and thereby reduce the estimated rate of return on investment.”