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Rise in Construction Materials Costs
Likely to Run Ahead of Overall Inflation
The price of construction materials continued to rise in September, despite a decline in the rate of inflation throughout much of the U.S. economy.
"Plunging petroleum prices drove down the overall producer price index (PPI) and moderated the increase in the PPI for construction materials and components," according to Ken Simonson, chief economist for the Associated General Contractors of America. The PPI for finished goods fell 1.1% for the month before seasonal adjustment and increased by 0.9% versus September 2005. "But the PPI for construction materials and components rose 0.3%, the same as in August, and had a year-over-year increase of 8.1%, nine times that of the overall index," Simonson added.
Although the 12-month increase moderated slightly, the additional costs continued to burden contractors, he said. The PPI for copper and brass mill shapes jumped by 75% year-over-year, for example. Other materials showed less dramatic but substantial increases for the period, such as the 33% increase in asphalt paving mixtures and blocks and the 3% rise in steel mill products.
"I expect contractors to get good news for the next few months relative to the artificially high post-hurricane prices of last autumn," Simonson added. However, prices are likely to continue to rise because of high worldwide demand and the effect of high freight and full costs, he explained.
"At the moment, falling diesel prices are helping contractors. But I expect construction materials costs over the next year to rise at least 6-8%, versus 2-4% for the overall economy," he said.