Construction Materials Costs Continue Upward Arc

June 19, 2006
The cost of construction materials continued its upward climb in May and is likely to continue to outpace overall producer prices, Ken Simonson, chief economist for the Associated General Contractors of America

The cost of construction materials continued its upward climb in May and is likely to continue to outpace overall producer prices, Ken Simonson, chief economist for the Associated General Contractors of America said last week after the Bureau of Labor Statistics issues its report on the producer price index.

“Overall producer prices are remaining well-behaved, with only a 0.2-percent increase in May and a 1.5-percent increase in the last year, outside of food and energy,” Simonson said. “But the PPI for construction materials and components jumped 1.2 percent last month and 7.8 percent over 12 months. By project type, the 12-month increases range from 8 percent for new single-unit residential construction to 16 percent for highway construction.”

Simonson said the increases are widespread. “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.”

Simonson projected that a cooling in the housing market will help prices level off, but a strong U.S. and world demand for materials and freight transportation will pressure prices. “Construction materials costs will keep outstripping the overall inflation rate,” he added. “Budgets must allow for more inflation, for purchasing materials earlier, and for sharing the risk and reward from price volatility.”