ABC: Monthly Construction Input Prices Increase in December

Construction input prices rose 0.6% in December compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices also rose 0.6% for the month.

Input prices for all three energy subcategories decreased for the month. Crude petroleum was down 16.4% in December, while unprocessed energy materials and natural gas were down 13.1% and 12.0%, respectively. Prices in all three energy subcategories, however, are still up significantly on a year-over-year basis. Overall construction input prices are up 22.3% from a year ago, while nonresidential construction input prices have increased 23.2% over that span.

“The definition of transitory continues to expand along the dimension of time,” said ABC Chief Economist Anirban Basu. “A year ago, Federal Reserve officials and many others thought that elevated inflationary pressures would have abated by now. They have not. Instead, materials prices remain elevated and generally continue to march higher.

“Much attention has been devoted to global supply chain disruptions,” said Basu. “Thanks to the omicron variant, those disruptions will persist through the first quarter of 2022. That translates into additional upward pressure on construction materials prices, something that estimators must consider as they submit bids for future work. Among the other implications of materials price increases is the redesign of projects to substitute for expensive inputs, such as steel. Not only does this put pressure on architects and engineers to identify alternative designs and materials, but it also means that contractors may end up working with inputs with which they are less familiar.

“ABC continues to forecast that, at some point later this year, materials prices will begin to normalize,” said Basu. “The expectation remains that global supply chain disruptions will steadily fade as 2023 approaches as will the demand shock associated with economic reopening. The Federal Reserve has pivoted to a regime emphasizing inflation containment, which will also help to suppress inflationary pressures at some point in 2022. For these and other reasons, confidence among ABC members has continued to inch upward, according to ABC’s Construction Confidence Index.”

Source: Associated Builders and Contractors, Inc.