May 17, 2022
Construction input prices have jumped 21% over the past year
Prices for materials and services used in new nonresidential construction jumped nearly 21% in April from levels a year ago, according to an analysis by the Associated General Contractors of America of released government data. last week.
The producer price index for new non-residential construction inputs — the prices charged by producers of goods and service providers such as distributors and transportation companies — rose 0.8% from March to April and 20.9% over the last 12 months. The AGC pointed to a wide range of costs rising at double-digit rates, driven by an 86% rise in the price of diesel fuel, 45% for aluminum factory forms, 32% for architectural coatings such than paint, 30% for plastics, and 21% for asphalt and roofing tar products.
“Nonresidential contractors have endured 12 months of 20% increases in the cost of items they need to build projects,” Ken Simonson, the association’s chief economist, said in a news release. “While they were able to pass on some of these cost increases to customers, most of these increases came from their own results.”
An index for the construction of new non-residential buildings – a measure of what contractors say they would charge to erect five types of non-residential buildings – rose 4.1% for the month and 19.9% from to the previous year. April was the 19th consecutive month in which the cost index rose more than the supply price index on an annual basis, Simonson added.
Additionally, there have been double-digit increases in several other price indexes that affect construction costs, Simonson noted. He cited as an example the insulation products index, which rose 19.6% year-on-year; gypsum products, 17.8%; copper and brass rolling shapes, 16.8%; paving mixes and blocks, 14.4%; and concrete products, 10.9%.
The Associated Builders and Contractors, another construction association, noted that input prices rose in 10 of 11 subcategories in April. The only category that saw a price drop was softwood lumber, down 17.7% for the month.
“Some economists believe that inflation has peaked,” ABC chief economist Anirban Basu said in another press release. “Even if this were true, stakeholders should not expect a dramatic decline in inflation in the near term given a range of factors exerting upward pressure on prices: the Russian-Ukrainian war, the COVID-19, reduced labor, high transportation costs and abundant demand for goods IPP statement (Thursday) indicates that producers continue to demand and receive high prices for their production These high input prices will continue to circulate through the economy as production continues, whether in the form of manufactured goods, buildings or infrastructure.
Basu added that many contractors report that demand for their services remains strong enough that they pass on most of their cost increases to owners. “But at some point the economy could weaken to the point where buyers of construction services become less willing to pay high prices,” he said.
“The Federal Reserve is now in the midst of what will likely prove to be a long process of monetary tightening, and higher borrowing costs make project start-ups less likely, all else being equal,” Basu noted. “That said, certain segments are likely to fuel this momentum, if it occurs. This includes public construction, given the recent adoption and ongoing implementation of a large US infrastructure package. It should be noted that recent inflation has reduced the return taxpayers will get per dollar spent on infrastructure.
The AGC is pushing the Biden administration to end tariffs on key building materials and reconsider its recently proposed Buy America regulations.
“Inflexible tariffs and overly restrictive regulations make it harder for contractors to source and pay for key materials,” said AGC CEO Stephen E. Sandherr. “Unnecessarily inflating the cost of construction and leaving employers with less money available to hire new staff is a bad way to rebuild infrastructure or stimulate the economy.”