Similar to the United States, the sharp rise in the costs of Canadian building materials has been seen

The following is a companion piece to a previous article on building materials cost changes in the US, which can be accessed by clicking on this Link.

The story in a nutshell is that the price of building materials north of the border is rising to every point to the same degree as south of the border.

The exception in both countries was softwood, where there was some variance and relaxation in price versus the steep climbs early last year. The Industrial Product Price Index (IPPI) for Canadian softwoods in May was -24.9% on an annualized basis and -7.6% compared to February, three months ago.

It doesn’t automatically follow that softwood is now a huge deal. Its price is still much higher than it used to be, as clearly shown in Cluster 1 chart below.

The softwood price is easier to explain in the United States than in Canada. In the May-April period, US housing starts fell from 1.810 million seasonally and annually-adjusted units (SAAR) to 1.549 million. Permits, as a leading indicator of the “start”, also retreated from their pace, declining from 1.823 million units to 1.695 million units.

However, housing starts in Canada gained momentum in May, moving to 287,000 SAAR units from 266,000 SAAR units the previous month.

From Table 1, the price of “veneer and plywood” is -18.6% per annum, but some other wood products continue to show their strength. For example, sawn lumber is +24.7% annually and +5.9% for the last 3 months.

In the United States, the data to reference regarding the cost of building materials is the Producer Price Index (PPI) series published by the Bureau of Labor Statistics (BLS). PPIs absorb the price of goods as they leave the front gate of the product. At least, that’s the official definition.

In Canada, comparable information can be found in Industrial Product Price Index (IPPI) materials compiled and published by Statistics Canada. IPPI data to gauge the prices charged by manufacturers, Statcan said.

Table 1 shows the annual and last three-month percentage changes for the 27 physical entries in construction activity. Red arrows indicate increases of +20.0% or more for year/year results and +5.0% or more for last three months results. Yellow arrows indicate a decline of -20.0% or deeper year on year and -5.0% or deeper in the last three months.

There is nothing to be gained by ignoring the obvious. There are a lot of red arrows in Table 1. The number is 22 red arrows to only 2 yellow arrows.

Cluster diagrams 1 and 2 shed more light on how building materials costs are rising in Canada in general. Most of the data series go back only to 2010. And in almost all charts, current index levels are higher than at any time since the 2008-2009 “financial crisis” recession.

In fact, the curves in most graphs go up with a slope that would challenge mountain goats.

The full IPPI data set contains some other interesting year-over-year increases: ammonia, urea and other chemical fertilizers, +90.9%, which helps explain concerns about food price hikes not stopping; Paper (excluding newsprint), +18.9%, which causes hardship publishers of novels, non-fiction works and textbooks to suffer; And jet fuel, at more than 168.6%, comes as the travel industry regains mojo, even though a pilot shortage looms large.

Finally, Chart 2 shows the Statistics Canada price indices computed separately for residential and non-residential construction. In each case, they are vehicles based on experience in 11 of the country’s major cities. The most recent change in the percentage of dwellings (Q1 2022) is almost twice as fast as the number of non-residential buildings, +22.6% to +12.8%.

It is said that one of the main factors in increasing costs is significantly higher expenditures in transporting inputs to job sites.

Table 1

block diagram 1

block diagram 2

Chart 1

Alex Carrick is chief economist at ConstructConnect. He has given presentations throughout North America on construction prospects in the United States, Canada, and the world. Mr. Carrick has been with the company since 1985. There are links to his many articles on Twitter Tweet embedwhich has 50,000 followers.

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