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Our Materials Price Index (MPI) fell 6.1 % last week in light
holiday trading, ending a string of strong December price
increases. By subcomponent, price declines were outnumbered by
increases, however, with seven of the MPI's ten sub-components
increasing. The MPI ended 2021 15.6% higher than at the start of
the year, though prices peaked back in May and have been trending
lower in fits and starts since.
Energy commodities continued to drive the MPI last week.
European liquefied natural gas (LNG) prices again demonstrated
extreme volatility, declining from prices ranging in the $50s per
MMBtu two weeks ago to the low $30s per MMBtu last week. Mild
weather in Europe and increased deliveries to the region led to
lower pricing. The movement in natural gas caused a 26%
week-to-week decline in the energy subcomponent of the MPI, the
largest decline in the 25-year history of the MPI. Natural gas
markets will remain subject to strong price swings through the end
of the 2021/2022 winter because of a tight global natural gas
market. Excluding energy commodities, the MPI increased 1.3% last
week, driven by sizable climbs in lumber, DRAMs, chemicals, and
fiber prices. This was the sixth consecutive climb in the portion
of the MPI excluding energy commodities.
Though natural gas prices took a step back, the energy crisis in
Europe is ongoing and remains hostage to weather trends and
political tensions between Russia and Ukraine, both of which create
uncertainty and therefore potential market volatility through the
first half of this year. More broadly, surging Omicron case counts
in Europe, North America, and elsewhere threaten to delay an
improvement in the poor supplier performance that has plagued
supply chains for the past two years. It has been this weakness on
the supply-side of markets that has contributed greatly to strong
goods price inflation. Any continuing difficulties in reducing
backlogs or speeding up delivery times will make the task of
lowering inflation harder.
Posted 06 January 2022 by Thomas McCartin, Senior Economist, Pricing & Purchasing, S&P Global Market Intelligence
