KEY FACTS
- Skyrocketing demand for lumber thanks to a pandemic-induced home renovation boom, combined with supply constraints caused by pandemic production delays and a pine beetle infestation in some Canadian forests, all helped contribute to an eye-watering surge in prices.
- But now the market appears to be returning to normal: Lumber futures for delivery in July were trading at $967 on Tuesday, compared to a peak of $1,670.50 in May 2021 and $422.80 in February 2020.
- And lumber isn’t the only commodity whose rally has stalled: Copper, corn and soybean prices have also begun to fall, Bloomberg reported Monday.
“I think ultimately, this decline was very much inevitable,” Sherwood Lumber Chief Operating Officer Kyle Little told FOX Business on Tuesday. “When you have over a 400% price move in about a 15-month period of time, the volatility involved with that will lead to price adjustments like we are experiencing right now,” he said.
BIG NUMBER
$34,000. That’s how much the rise in lumber prices added to the price of a new home over the past year, analysts from Bank of America said in a recent report.
KEY BACKGROUND
Price surges across industries have ignited a national debate about whether too much government stimulus spending and overly accommodative Federal Reserve policy has the potential to overheat the economy and cause lasting damage to the recovery. “If the gas crisis is a candle flame and lumber prices are a campfire, then growing inflation is a forest fire that has ignited and may eventually burn through our entire economy,” Sen. Ted Cruz (R-Tex.) tweeted earlier this month. Officials within the Biden Administration and the central bank have repeatedly emphasized that a short-term spike in prices is to be expected as the economy recovers and will fade over time.
WHAT TO WATCH FOR
The Federal Reserve concludes its two-day meeting on Wednesday, and investors will be watching closely for any clues that the central bank plans to tighten policy and begin withdrawing some of its support for the economy. Many experts expect the Fed to continue to hold the line on interest rates, which have been at near-zero levels since the onset of the pandemic. “Even though inflation metrics are high, the pressure is starting to come off and that leaves investors to say, ‘Gee, the Fed is right, the Fed knows what it’s doing, and we don’t have to worry about the Fed hiking rates too quickly or an inflation problem in this economy,’” Tom Essaye, a former Merrill Lynch trader, told Bloomberg.
CONTRA
It’s not all smooth sailing ahead. “Transitory inflation is occurring in parts of the market, particularly commodities, as prices for corn, copper and lumber are well off their highs, but housing inflation is a thornier issue for the Federal Reserve,” says Danielle DiMartino Booth, CEO and chief strategist of Dallas-based Quill Intelligence. That’s because the housing sector accounts for a much larger slice of the economy than commodities. DiMartino Booth says rental prices are likely to be the “next inflationary victim” and expects them to surge as large cities reopen.
CHIEF CRITIC
Billionaire hedge fund manager Paul Tudor Jones said Monday that if the Fed does not act soon to address signs of rising inflation (consumer prices rose 5% in May), “It’s just a green light to bet heavily on every inflation trade.” He added that the Fed is risking “damaging their credibility” if inflation turns out to be more than transitory.