The Building Tradesman Newspaper

Friday, June 23, 2006

Material price inflation

By The Building Tradesman

WASHINGTON, D.C. - The market for construction materials is way up compared to other types of goods - and they may stay higher.

"Many materials are contributing to the increase," said Associated General Contractors of American (AGC) Chief Economist Ken Simonson this month. "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."

By project type, the 12-month increases range from 8 percent for new single-unit residential construction to 16 percent for highway construction.

Not counting food and energy, the producer price inflation rate was 1.5 percent last year, but the producer price index for construction and material components jumped 7.8 percent over the last 12 months.

"Public agencies, private owners, and contractors need to face this new reality," Simonson said. "Budgets must allow for more inflation, for purchasing materials earlier, and for sharing the risk and reward from price volatility."