Construction Materials Costs Again Outrun Overall Producer Prices—Owners, Contractors, "Get Used to It"
Contractors should get used to higher materials cost inflation. The Bureau of Labor Statistics issued the producer price index (PPI) for May on Tuesday and overall, producer prices are remaining well behaved, with only a 0.2 percent increase in May and a 1.5 percent increase in the last year, outside of food and energy. But the PPI for construction materials and components jumped 1.2 percent last month and 7.8 percent over 12 months. By project type, the 12-month increases range from 8 percent for new single-unit residential construction to 16 percent for highway construction.
Many materials are contributing to the increase. In the last 12 months, there have been increases of 87 percent for copper and brass mill shapes, 48 percent for asphalt, 40 percent for diesel fuel, 26 percent for gypsum products, 18 percent for plastic construction products, and 15 percent for cement.
I expect a few of these increases to level off as the housing market cools, but most are tied to strong U.S. and world demand for materials and freight transportation. Thus, I think construction materials costs will keep outstripping the overall inflation rate.
Public agencies, private owners, and contractors need to face this new reality. Budgets must allow for more inflation, for purchasing materials earlier, and for sharing the risk and reward from price volatility.
For more information or to receive the Data DIGest, a free weekly one-page summary of economic news relevant to construction, e-mail Ken Simonson at email@example.com.
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