Materials and Services Prices Accelerated in 2018

After a year marked by numerous price spikes, construction costs declined in December but remained elevated compared to year-earlier prices, while prices of new buildings also moved higher, according to an analysis by the Associated General Contractors of America of new Labor Department data.

“Steep declines in fuel prices in December offset mixed costs for other construction inputs, but most materials and services posted higher year-over-year increases than in 2017,” said the association’s chief economist Ken Simonson.

Simonson said that the producer price index for inputs to construction industries – a weighted average of all goods and services used in construction – decreased 0.8 percent in December, but ended the year 3.8 percent higher than in December 2017. The index for energy costs declined 11.5 percent for the month and 3.9 percent for the year. But the price of other goods used in construction climbed 0.1 percent for the month and 4.8 percent for the year. The price index for services purchased by contractors rose 0.4 percent for the month and 4.2 percent for the year.

An index that measures what contractors report they would charge to construct new nonresidential buildings was unchanged for the month and ended the year 5.3 percent higher than in 2017. Simonson observed that this “bid-price” index outpaced the index for construction input costs only in the last two months of 2018, implying that many contractors experienced unexpectedly high costs for materials and services during the year.

“Public officials may be forced to scale back planned infrastructure projects to cope with higher costs while many privately financed projects may no longer pencil out if construction costs continue to increase,” said Stephen E. Sandherr, the association’s chief executive officer. “Resolving costly trade disputes and addressing labor shortages will help relieve much of the inflationary pressure on construction costs.”

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