Area Economy

Construction input prices expand as inflation creeps higher

December 29, 2017
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Construction input prices expanded 0.7 percent in November and rose 5.6 percent on a yearly basis, the largest increase since November 2011, according to an analysis of Bureau of Labor Statistics data.

Nonresidential construction materials prices also expanded 0.7 percent for the month and 5.4 percent for the year. Crude petroleum prices rose 11 percent in November and are 31 percent higher than this time last year.

It would be an exaggeration to suggest construction materials prices are spiking, however. When viewed in the aggregate, materials prices now are rising at their fastest rate in six years. As always, there are many factors at work, but undoubtedly, one of them is the ongoing improvement in the global economy and continued rapid growth in a number of emerging nations. Growth also has been accelerating in much of the advanced world, including the United States, Japan and much of Europe.

What’s more, global growth is expected to hasten next year. That should induce stable-to-rising global commodity prices next year, at least during January. There is little reason to believe materials prices will skyrocket as they did during periods both prior to and immediately after the financial crisis. Higher prices trigger more quantity supplied, which in turn helps to suppress price momentum.

Still, contractors must be prepared to deal with steadily rising costs of delivering construction services. This will place more pressure on estimators who must increasingly build into their bids the possibility of cost increases over the course of individual projects.

Labor shortages continue to represent the No. 1 concern of construction firms in America, but materials price inflation can no longer be ignored.

Anirban Basu is chief economist with Associated Builders and Contractors.

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