Materials | Features

Key indicators
	Percentage change over past 12 months (April 2005-April 2006)	Direction of movement

Consumer Prices Index (CPI)	+2.0	(up)

The annual percentage change measured by the Consumer Prices Index is precisely in line with the chancellor’s prescribed target and has not moved outside a level of +/- 0.2% of the 2% target for six consecutive months. In the short term, inflation is now expected to rise above the target, reflecting the further rise in oil prices, higher import costs and increases in retail gas and electricity prices.

Industry generally (April 2005-April 2006)

Materials and fuels purchased by manufacturing industry	+15.7	(up)
Materials and fuels purchased by manufacturing industry excluding food, beverages,tobacco and petroleum industries	+10.2	(no change)
Output prices of manufactured products	+2.4	(down)
Output prices of manufactured products excluding food, beverages, tobacco and petroleum	+2.3	(up)

Inflation in industry’s input costs peaked at 18.1% last December, began to fall but has picked up again over the last two months as crude oil prices surged once again. Excluding food, beverages, tobacco and petroleum industries, other industries’ input costs have been steady over the past four months at just over 10%. Fuel costs (gas and electricity) have fallen a little since the turn of the year but still show a 50% increase over the past 12 months.

Input prices faced by particular industries over the last year include:

Mining and quarrying products	+13.7%
Wood and wood products	+4.2%
Rubber and plastic products	+5.9%
Fabricated metal products	+7.0%
Electrical machinery and apparatus	+7.6%

The principal commodities driving the input price rises over the past year have been:

Electricity	+47%
Gas	+60%
Crude oils	+45%
Imported non-ferrous metals	+44%

Output price inflation continues to lag far behind input cost inflation. The rate of output price inflation of manufactured products excluding food, beverages, tobacco and petroleum products has been rising since the end of last year but, at 2.3%, is still lower than a year ago.

Construction materials generally

Non-housing new work	+1.1	(up)
New housing	+3.7	(up)
Repair and maintenance	+2.8	(up)

Mechanical services materials

Non-housing	+6.7	(up)
Housing only	+7.9	(up)

Electrical services materials	+1.3	(no change)

Construction materials price increases over the past year have averaged 2.4%, with housing materials showing a rate of increase more than three times that of non-housing materials. The principal reason for the seemingly low figure for non-housing work is the reduction in price in structural steelwork and concrete reinforcement through the middle of 2005. Over the past six months, non-housing materials have risen 2.8% in price, and housing materials have registered a 2.7% increase. Mechanical services materials prices have shown by far the highest increases over the past year. Since the middle of 2005, prices have risen steadily on the back, in particular, of the rise in copper prices. Electrical services materials, by contrast, have registered very little increase in price until now – surprising perhaps, considering the copper content of cables, but any increases have been balanced by zero inflation in items such as lighting equipment.

Significant price changes recorded by official sources over the past year include:

	% change (April 2005-April 2006)

Copper tubes and fittings	42.9
Lead, zinc and tin	32.1
Gas oil	23.2*
Aluminium bars, rods and profiles	23.0
Bituminous mixtures	16.2
Asphalt products	13.7
Imported hardwood	12.9
Insulated wire and cables	11.2
Recovered secondary raw materials (such as scrap metal)	10.6
Non-domestic cooling and ventilation equipment	9.7
Aluminium plates, sheets and strips	8.2
Cement	8.0
Plastic floorcoverings	7.5
Coated roadstone	7.3
Concrete reinforcing bars	–8.8*
Fabricated structural steel	–13.8*
Steel sheet piling	–14.9*

* March 2005 to March 2006
(Data sources: ONS and DTI)
(March/April 2006 figures provisional)

After a spate of materials price increases at the beginning of the year, associated largely with attempts to pass on higher energy costs, the story has reverted back to metal prices. Copper prices, in particular, have been rising, almost without interruption, since 2003 but went into overdrive this year. Averaging $1780 (£945) a tonne in 2003, the London Metal Exchange price started 2006 at $4500 (£2400) a tonne but by mid May had breached $8500 (£4500) a tonne. Although demand and supply disruptions have underpinned the rise, commodity speculation may also have fuelled the latest spiral. Some commentators believe a crash is inevitable.