Over the past year, commodity prices, especially in the lumber industry, spiked. Simultaneously increased demand for buildings, backyard renovations for new patios and decks all impacted the lumber industry as it saw record-breaking peak prices never seen before. Now, as demand has slowed its pace, prices are dropping again, but what does that mean for the lumber industry and homeowners?
What is Commodity Inflation?
First, commodities are materials such as lumber, copper, or any economic good or resource that can be bought, sold, or traded. Investopedia explains that “Owning commodities in a broader portfolio is encouraged as a hedge against inflation.”
Commodity inflation itself occurs when the prices of commodities rise over a period of time due to increased demand and decreased supply. Their value increases and the purchasing power decreases.
Commodity Inflation in the Lumber Industry
Commodity inflation as experienced earlier this year may be a thing of the past. This spring season saw a surge in lumber prices as demand for lumber peaked. The commodity price increases were felt nationwide.
Homeowners began working on home improvement and DIY projects across the country. In turn, this peak in projects caused a high demand for lumber. At their pinnacle in May, lumber prices reached a record high of $1,515 per thousand board feet.
In August, prices dipped back down to about $400 per thousand board feet. Prices remained low in the past few months as demand slowed in reaction to heightened lumber prices. As lumber prices remain low, they could experience slight increases again due to continued demand in a tightening labor market, wildfires destroying lumber supplies in western Canada, transportation issues, and shipping bottlenecks in seaports.
However, the oversupply of lumber may continue to offset increasing prices and instead drive prices down again until demand picks back up. According to Fortune, “the pullback in DIY- just after setting an all-time record in March- is catching some big-box retailers off guard.” High supply paired with lower demand forced lumber prices to fall to match demand trends.
The photos below show the five-year trend in lumber prices. Photos provided by Fortune.com
Even with declining prices in lumber, an outdoor remodel will most likely cost more now than it would have before the pandemic. As prices continue to decline, only time will tell how long the lumber economy will take to taper out from peak prices.
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