Construction Material Prices Rising Again After December Drop

Construction material prices increased last month, a sign that inflation in the sector is sticking around.

Overall construction and nonresidential input prices increased by 1.3% and 1.1% in January, after December saw the biggest percentage drop in prices in more than two years, according to the Associated Builders and Contractors's latest report.

Overall construction prices and nonresidential construction prices were up by 4.9% year-over-year, the smallest annual increase since January 2021, according to the ABC's analysis of Bureau of Labor Statistics data, which was first reported by Construction Dive.

ABC Chief Economist Anirban Basu said the January increase — which came as part of a surprisingly high BLS inflation report last week — shows the economy is not slowing at the rate originally predicted and "remains overheated."

"The implication is that the Federal Reserve will maintain higher interest rates longer," Basu said in a statement. "Ironically, it is the current strength of the economy that makes a recession more likely sometime during the next 12 months. At some point, higher interest rates will meaningfully affect economic activity."

Overall, construction and commercial input prices are at 37.9% and 38.2% higher than they were three years ago. Iron and steel are 55.9% higher that in February 2020 while concrete costs 27.9% higher than when the coronavirus pandemic began.

While iron and steel and lumber prices continued their decline in January — down 23% and 12.3% year-over-year — concrete rose 1.1% and construction machinery and equipment rose 3.4% from December.

Developers said Wednesday at Bisnow's New York Construction and Development event that rising costs, acute labor shortages and bureaucratic delays are all piling on to make construction more expensive, and that's before taking into account higher interest rates. The ABC estimates that the industry is short 546,000 workers in 2023.

"I’m looking at one of my deals, I had to add $21M, just because interest rate nearly doubled from last year," Grubb Properties Senior Vice President Lauren Cahill said at the event. "It’s hard to make those numbers work."