Lumber continues to skid below $900 with the commodity in free-fall from May highs

• Lumber futures fell as much as 3% Wednesday to $860.70 per thousand board feet.
• Lumber prices are trading nearly 50% below their May 10 peak of $1,711 per thousand board feet.
• Last week, Fed chair Powell said declining lumber prices illustrate that inflation will be short-lived.

Lumber futures fell as much as 3% Wednesday to $859.8 per thousand board feet, extending the fall beneath $900 as the commodity's rally continues to cool off.

Lumber prices surged throughout the pandemic as homebuilding boomed and supply tightened. Now, prices are trading nearly 50% below their May 10 peak of $1,711 per thousand board feet.

Over the past 12 months, however, lumber is still up over 107%.

Expanding supply is partly to blame for lumber's recent downturn. US lumber production has jumped 5% over the past 12 months with another increase of 5% on the way, according to Domain Timber Advisors LLC, a subsidiary of Domain Capital Group, per Bloomberg.

Lumber's soaring prices were one of the first indicators to many investors that inflation could be increasing too quickly as the economy climbed out of the pandemic. Now, lumber's decline is signaling to some that inflation will prove to be temporary after all, as the US Federal Reserve has been insisting. Fed chief Jerome Powell reiterated this view in his press conference last week, and again at Tuesday's congressional testimony.

"The thought is that prices like that, that have moved up really quickly because of shortages and bottlenecks and the like, they should stop going up. And at some point, they, in some cases, should actually go down. And we did see that in the case of lumber," Powell said.