Inflation Boom

Steve Saretsky -

Inflation is picking up, this is particularly the case for commodities. Commodities jumped to their highest in almost a decade as a rebound in the world’s largest economies stokes demand for metals, food and energy. The Bloomberg commodity index is now up a whopping 50.54% from last year, and 20% year to date.

“The surge in commodity prices over the past year now guarantees higher goods price inflation this summer,” IHS Markit Ltd. said in a recent report. Adding, “During the next few months, even top-line consumer price inflation in countries such as the United States will rise to rates not seen in nearly ten years.”

The commodities boom is resulting in surging costs for homebuilders, who, at least so far, have been able to pass on these costs to home buyers. Lumber prices have more than quadrupled over the past 12 months, with lumber futures recently hitting an all time high of $1500 USD/ per thousand board feet. According to the National Home Builders Association, this has added an additional $35,872 to the cost of a new single family home. And thats just lumber costs.

Copper prices have also soared to record highs, rising more than 30% this year and have more than doubled from lows in March of last year. Meanwhile, the costs of paints and varnishes are up by nearly a third, while polymers such as polyethylene and polypropylene have risen by 60%.

According to Canada’s national statistics agency, in the first quarter of 2021, Canada’s 11-city composite index suggests residential real estate construction costs climbed 11.7% from last year. Although as is typical with most of the Governments inflation indexes, it is arguably underreporting the rising costs of home construction.

Amidst a housing boom that has resulted in higher home prices, and rising construction costs, housing affordability continues to drift further away from policy makers. Let’s hope our central bankers are right, and that this inflationary boom is indeed transitory.

Three Things I’m Watching:

1. Canadian home building costs surged 11.7% in Q1 2021. (Source: Better Dwelling, Stats Canada)

2. The Bloomberg Commodity Index is up 50% from last year. (Source: Bloomberg)

3. Copper prices hit record highs amidst optimism of global recovery. (Source: Bloomberg)

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The Saretsky Report. December 2022