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Aug 18 2021
As 2021 second-quarter numbers get reported, all the news feeds are full of inflation talk – is it a transitory or dangerous trend? As we release our Q2 Economic Indicator Report, the Producer Price Index (PPI) numbers were also released, and they are “hotter” than expected. For reference, the PPI index measures price changes from the purchaser’s perspective.
The Producer Price Index for final demand rose 1% in July as reported by the Bureau of Labor Statistics. On an adjusted basis, the final demand index moved up 7.8% for the 12 months ended July 2021. This is the largest advance since 12-month data were first calculated in November 2010.
Nearly three-fourths of the July increase in the final demand index can be traced to a 1.1% advance in prices for final demand services. The index for final demand goods rose .6%.
This makes sense – as I poll our project teams, the single consistent theme is the cost and lack of labor.
Interpreting the Trends
In summary, we are experiencing “hotter” price increases (inflation) than initially anticipated as the economy first started to recover. Labor costs are notably higher, and the market for skilled trades continues to be THE hurdle for the construction industry. While the temporary shortage of some building materials can be managed, the continued tightening of the labor market will continue to affect the schedule. The construction market is continuing to experience increases in construction costs across all types of construction. The lead indicators point toward more of the same as we move through the back half of 2021 and into 2022.
Advanced planning is the single best way to control your budget – so if you have a project in your future – work closely with your architect and construction partners now and start the planning process a little earlier than you typically would to save money.
Majaski, C. (2021, July 26). Producer Price Index (PPI). Retrieved from investopedia.com: https://www.investopedia.com/terms/p/ppi.asp