Altogether, construction material prices will likely increase 18.4% in 2021, the largest increase since its data collection began in 1995.

All the increases in 2021 should have already occurred, with price increases recorded for each month from December 2020 through July 2021. The Bureau of Labor Statistics’ preliminary data for August 2021 points to a price decline, and IHS Markit analysts expect that prices will generally decline through the end of 2022.

Many of the price increases were driven by increasing construction activity while supply had yet to recover. This mismatch between supply and demand pushed prices higher and was further exacerbated by other issues such as logistics problems and ongoing global COVID-19 outbreaks.

U.S. construction demand is expected to grow a moderate 2% in 2021; this is buoyed by the residential market, while nonresidential construction activity is lackluster. Looking ahead, residential construction demand will soften as housing demand starts to wane, while nonresidential construction will slightly improve but remain soft.

Plywood prices are starting to decrease in North America, as the large softwood lumber price declines are finally filtering through to softwood markets. According to the Bureau of Labor Statistics, plywood prices declined 11.5% in August, but there is still plenty of room to fall. Plywood prices could fall as quickly as softwood prices did since softwood supply has returned. As such, we expect prices will continue to ease through the rest of 2021.

On the positive side, a broad price correction appears to be underway in commodity markets. The IHS Markit Materials Price Index fell 14% in the four weeks that ended November 11th, and it stands 20% below its mid-May peak. Shipping rates and prices of lumber, ferrous metals, and coal are retreating from exceptional highs. With normal lags, the declines in raw material prices should bring some relief to finished goods markets in the first half of 2022. However, natural gas prices are expected to stay elevated through the Northern Hemisphere’s winter and then decline as depleted storage facilities are refilled.

Global consumer price inflation is projected to pick up from 2.2% in 2020 to 3.7% in 2021, its highest rate since a 5.0% advance in 2008. As agricultural and industrial commodity prices retreat, consumer price inflation will ease to 3.5% in 2022 and 2.7% in 2023 and 2024.