Inflation cools, but material prices remain high
- Construction input prices remained unchanged in June, following three consecutive months of drops, signaling the end of unchecked inflation in the sector, according to a new Associated Builders and Contractors analysis.
- Overall construction costs are now 4.9% lower than they were a year ago, while nonresidential input prices are down 4.5%, according to the report. While input prices still sit 38% higher than they were at the start of the pandemic, the consistent flattening of costs means the worst of inflation is likely in the industry’s rearview mirror.
- “The pandemic-induced period of rapid construction input cost increases is over,” said Anirban Basu, chief economist at ABC in the release. “This recent moderation is partially due to a drastic improvement in supply chains; both international and domestic freight rates have plunged back toward pre-pandemic levels.”
Despite that seemingly positive news, Basu said the last three years of price increases have left construction in a precarious position.
The mix of still-expensive materials compared to pre-pandemic levels, tight credit conditions and high interest rates that are likely to rise again at the Federal Reserve’s July meeting will almost certainly put downward pressure on construction activity over the next few quarters, Basu said.
Despite the overall flattening of construction materials prices, costs went up in 7 of 19 commodity categories in June, according to the report.
That’s because strong nonresidential activity is keeping price pressures on sought-after materials, such as concrete and steel, said Chris Delaney, commercial manager in the Americas division at construction consultancy firm Linesight.
Basu said last month that multi–billion dollar megaprojects should continue to break ground across the country, causing continued upward pressure on key construction materials.
While those details mean the dropping tide isn’t being felt everywhere evenly, the overall results suggest inflation is indeed slowing, at least with regards to goods prices, said Basu.
For example, all energy subcategories dropped in June, led by a 5.9% dip in crude petroleum, 5.3% in natural gas and 5% in unprocessed energy materials prices. Other materials prices, such as iron and steel, fell 2.5%.
Nevertheless, concrete products ticked up 0.6%, switchgear increased 1.5% and prepared asphalt jumped 1.9%, according to the report.