Construction input prices inched higher in October and remain up 14.6% from a year ago. Federal data also show that construction bid prices rose in October as firms coped with ongoing supply-chain and labor challenges.
Analysis by the Associated General Contractors of America and Associated Builders and Contractors suggests that rising construction costs threaten to undermine demand for projects.
“Although some materials costs have moderated, other costs are still climbing steeply, while contractors are incurring added expenses from delays caused by supply-chain disruptions, shortages of skilled labor and rising interest rates,” said Ken Simonson AGC chief economist. “Some owners may delay or cancel projects as the price to complete them continues to increase, threatening to undermine overall demand.”
Monthly, input prices were up in only three of the 11 subcategories. Natural gas experienced the largest decline in prices, falling 37.8% in October. In addition, crude petroleum prices increased by 2%.
Other inputs declined in price for the month but still rose steeply from a year earlier. The index for asphalt paving mixtures and blocks decreased by 0.7% in October but was 20.7% higher than in October 2021. The index for gypsum building materials such as wallboard slipped 0.4% from September but jumped 17.6% from a year ago. The index for insulation materials edged down 0.2% in October but rose 13.5% over the year. The cost of truck transportation of freight slid 1.4% for the month but increased 11.8% over 12 months.
The producer price index for inputs to new nonresidential construction rose 0.2% for the month and 11.2% over 12 months.
However, the input price index does not capture contractors' added costs from materials that are not delivered on schedule, rising wage rates, overtime pay or the financial costs associated with delays.
Input costs were mixed in October, and numerous items posted double-digit increases compared to year-ago levels. The producer price index for diesel fuel soared 9.8% for the month and 61.5% year over year. The index for cement rose by an unusually large 2.5% in October, bringing the year-over-year increase to 13.4%. The index for architectural coatings such as paint surged 1.1% for the month, and 27.5% over 12 months.
“Construction input prices inched higher in October, but that was largely due to an increase in petroleum prices,” said ABC Chief Economist Anirban Basu. “Certain categories, like steel mill products and iron and steel, experienced sharp price declines for the month.”
He said it is a welcome development for contractors, as just 31% expect profit margins to rise over the next six months, according to ABC’s Construction Confidence Index.
“For weeks, the conventional notion has been that peak inflation is behind us,” said Basu. "Today's PPI report supports this and gives credence to the idea that the Federal Reserve will soon slow interest rate increases. Contractors should take a wait-and-see approach, at least until we have multiple months of data suggesting that peak inflation has been achieved."
Association officials have urged federal officials to remove tariffs on key construction materials including steel and aluminum. In addition, they urged President Biden to reconsider measures like Buy America that they say artificially inflate the cost of materials for infrastructure projects.