Tumbling lumber prices are a sign that strong inflation will be temporary, Bank of England boss says

• The plunge in lumber prices is a sign strong inflation should fade, the Bank of England’s governor said.
• Andrew Bailey is among the central bankers to argue that inflationary pressures should be temporary.
• Lumber prices soared but then tumbled 45% in June as sawmills upped production and demand slipped.
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The dramatic fall in lumber prices in the last month is a sign that strong inflation will be temporary, the governor of the Bank of England said on Thursday.

Lumber futures soared in the first few months of the year before dropping more than 40% in June. Prices peaked at more than $1,670 per thousand board feet of lumber in early May, but have since plummeted to around $760.

The drop is a sign that pandemic-driven booms in certain sectors will wear off as economies rebalance and supply catches up with demand, Bank of England Governor Andrew Bailey said in a speech on Thursday.

“We are seeing rebounds and normalisation of some commodity prices,” Bailey said. “In the US, lumber prices having risen sharply, are now retracting a sizeable part of that rise.”

“There are plenty of stories of supply chain constraints on commodities and transport bottlenecks, much of which ought to be temporary.”

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In the UK, year-on-year inflation jumped to a two-year high of 2.1% in May. In the US, year-on-year inflation hit a 13-year high of 5% in the same month.

But both Bank of England – the UK’s central bank – and the Federal Reserve argue that sharp price rises are a result of strong growth and bottlenecks in certain sectors. They say inflation will cool as growth slows, businesses adapt and people’s eagerness to spend wanes.

In the lumber market, analysts say prices are tumbling because people are spending less on home improvements as restrictions are lifted. Meanwhile, lumber producers have increased their supply.

However, not all analysts agree that falling prices in some sectors mean inflation will be temporary.

Hugh Gimber, global market strategist at JPMorgan Asset Management, said rising wages across economies as firms rehire workers could cause prices to rise more than expected.