WASHINGTON, D.C. - "Surging prices for diesel fuel, asphalt, steel and other materials are clobbering construction budgets," Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), said July 17. Simonson was commenting on the producer price index (PPI) for June reported that day by the Bureau of Labor Statistics (BLS).

The PPI for inputs to construction industries - materials used in all types of construction plus items consumed by contractors, such as diesel fuel - surged 10.4 percent over the past 12 months. The index for highway and street construction leaped 18.9 percent.

"Bad as those figures sound, the increases in asphalt and steel costs have been even worse since these prices were collected in mid-June," Simonson said. "In the first two weeks of July, asphalt prices have jumped by 40 percent in several parts of the country. He said prices for reinforcing steel used to reinforce concrete in highways, bridges and buildings soared $200 per ton.

Regarding diesel fuel, the Energy Information Administration reported that the average price of highway diesel hit a new record of $4.76 per gallon, up 12 cents just in the past two weeks. "These figures won't show up in the PPI until next month, but contractors are paying them now," Simonson noted.

"Suppliers have been announcing price increases for many other products as well," Simonson added. "Yesterday, two gypsum makers told contractors that wallboard prices would rise at double-digit rates in each of the next three months."

In the futures markets, aluminum has been setting records, while natural gas has doubled in price from a year ago. In turn, that has triggered jumps in the cost of construction plastics - such as polyvinyl chloride pipe, insulation and flooring that use natural gas as a feedstock. "Unless Congress passes additional funding in the next few weeks to keep highway construction funds flowing, many states will stop awarding contracts," Simonson warned. "Other public agencies, as well as private owners, must adjust their budgets promptly to reflect the new price realities for construction."