US Lumber Prices Halve in 3 Months... A Signal of Inflation Stabilization?

[Asia Economy Reporter Byunghee Park] As the U.S. central bank, the Federal Reserve (Fed), raised its benchmark interest rate, lumber prices have rapidly deflated, halving in just three months. During the COVID-19 pandemic, lumber prices rose preemptively, serving as a leading indicator of supply chain disruptions and rising U.S. inflation. Attention is now focused on whether the collapse of the lumber price bubble will signal stabilization of U.S. inflation.

According to the Wall Street Journal (WSJ) on the 30th, last week, the July delivery lumber futures price closed at $695.10 per 1,000 board feet (TBF). Compared to over $1,400 per TBF in early March, this is a 50% drop. The spot lumber price also plunged 12% last week alone, falling to $794 per TBF. Spot prices had risen to $1,334 per TBF in March.

The Fed's interest rate hikes are expected to burden the housing market, reducing lumber demand and causing lumber prices to plummet. In fact, after the Fed raised the benchmark interest rate for the first time in over three years in March, home sales have sharply declined. The U.S. Department of Commerce reported last week that new home sales in April fell 16.6% compared to the previous month?the largest drop in nine years. Lumber market information provider Random Lengths explained last week’s weekly price trends by stating, "Lumber purchase orders are decreasing, and lumber inventories are increasing."

The Fed is signaling strong interest rate hikes day after day to curb inflation. Following May, the Fed has effectively signaled a ‘big step’ of raising rates by 0.5 percentage points at once in June and July. Christopher Waller, a prominent hawkish Fed governor, said in a speech that day, "We will not withdraw the 0.5 percentage point rate hike until the inflation rate approaches the monetary policy target of 2%," and argued, "We must raise the policy rate above the neutral rate by the end of the year to suppress inflation."

Facing inflation accountability ahead of the November midterm elections, U.S. President Joe Biden will meet with Fed Chair Jerome Powell on the 31st to discuss the economic situation. This meeting is the first in about six months since November last year. The inflation rate, soaring to a 40-year high, has dealt a direct blow to President Biden’s approval ratings. Biden’s approval rating, which was 56% in January 2021 shortly after taking office, has recently plummeted to around 40%. During this period, the U.S. Consumer Price Index (CPI) inflation rate surged from the 1% range to the 8% range. However, with the CPI inflation rate easing from 8.5% in March to 8.3% in April?the first slowdown in eight months?there are also expectations that inflation may have peaked.

This content was produced with the assistance of AI translation services.