The Associated General Contractors of America (AGC) has released its latest Construction Inflation Alert (CIA) and warned of an inflation rate for construction materials of 6 to 8 percent, with periods of 10-percent increases possible.
Construction segments like highways that are most depended on volatile prices for petroleum products are particularly vulnerable to such prices increases, according to the report.
“Private owners, public agencies that do budgeting and design and contractors should all be aware that construction materials prices are likely to keep rising at a much faster rate than the 3-to-4-percent increase in the consumer price index (CPI) or broad producer price index (PPI) for finished goods,” says AGC’s Chief Economist Ken Simonson. “If these increases continue, I’m concerned that the inflation rate for construction materials could be double the rate of overall inflation.”
For instance, the price of steel soared 50 to 60 percent in the first half of 2004 after years of flat or falling prices. Steel prices declined slightly in late 2004 and most of 2005, but have risen again in 2006. Meanwhile, other metal costs, particularly copper, have jumped even more than still mill products.
Two factors make construction vulnerable to above average cost increase, according to Simonson. Contractors are generally locked into fixed quantities of materials and construction costs are vulnerable to transportation costs and bottlenecks. Unlike consumer electronics makers, for instance, contractors cannot generally make a building or highway smaller or lighter. Contractors also require physical delivery of large quantities of goods to a specific location, in many cases from around the world and any number of influence can drive up delivered costs.