Materials Prices Index Takes Huge Leap from 2020

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AGC PPI chart June 2021.

Year-over-year construction costs rose between 24 percent and 26 percent in June and threaten contractors, according to analyses by contractor groups of government data. The Associated General Contractors of America (AGC) said costs rose 26.3 percent in June compared to 2020, and the Associated Builders and Contractors said construction input prices were 24.8 percent.

“Contractors have been pummeled in the past year by cost increases, supply shortages, and transport bottlenecks,” said Ken Simonson, AGC’s chief economist, in a prepared statement. “Meanwhile, falling demand for many types of projects meant contractors could not raise bid prices enough to recoup these expenses.”

ABC chief economist Anirban Basa said in a statement:

“The inflation drumbeat continues. With each passing month, the possibility that meaningful inflation will be long-lived increases. For various reasons ranging from sky-high shipping costs to labor shortages and global supply chain disruptions, construction input prices continue to march higher.

“While softwood lumber and energy prices have attracted a considerable share of attention recently, steel mill product prices are up nearly 88 percent over the past year and iron/steel prices are up more than 73 percent,” said Basu.

In addition to increases in materials costs, transportation and fuel costs also spiked. The index for truck transportation of freight jumped 15.4 percent, according to AGC. Fuel costs, which contractors pay directly to operate their own trucks and off-road equipment, as well as through surcharges on freight deliveries, have also jumped.

The producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—rose 3.4 percent over the past 12 months, according to AGC, compared to the 26.3-percent increase in the prices that producers and service providers such as distributors and transportation firms charged for construction inputs.

ABC noted that all three energy subcategories experienced “significant” year-over-year price increases. The price of crude petroleum has risen 108.8 percent, according to its analysis, and natural gas and unprocessed energy materials prices have increased 105.9 percent and 83.5 percent, respectively.