Contractors Say Construction Input Inflation Has Peaked

Construction input prices declined 0.9% in November compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data released today. Nonresidential construction input prices fell 0.8% for the month.

Construction input prices are up 11.9% from a year ago, while nonresidential construction input prices are 11.5% higher. Input prices were up in only four of the 11 subcategories on a monthly basis. Natural gas experienced the largest decrease in prices, falling 15.8% in November. Unprocessed energy prices declined 7.8%, while crude petroleum prices were down 2.3%.

“The decline in wholesale prices for many construction inputs is generally positive news,” said ABC Chief Economist Anirban Basu. “Increasingly, we are receiving news that construction input inflation has peaked as supply chains continue to normalize despite a range of geopolitical stressors. In November, much of the relief emerged from lower energy prices. According to ABC’s Construction Confidence Index, contractors are already expecting growth in sales and employment levels over the next six months; this report will do little to curb that optimism.

“As always, there is more to this report than meets the eye,” said Basu. “Prices for various economic services grew faster than expected, a reflection of a still very strong labor market associated with substantial compensation growth. Therefore, while supply chains may be improving, helping to moderate the price of physical inputs, contractors will continue to face elevated and rising human capital costs. This may explain why just as many contractors expect profit margins to decline over the next six months as expect them to expand.”