Construction input prices move ahead in January

Construction input prices increased 2.5% in January 2021 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. 

Compared to a year ago, construction input prices are up 4.8%.

Nonresidential construction input prices rose 2.1% for the month and are increased 4.2% from a year ago.

Softwood lumber prices are up 73% on a year-over-year basis and are up 14% from the previous month.

Year-over-year iron and steel prices are up 15.6%. Natural gas prices have climbed 30% over the past year, while crude petroleum prices have declined 10.5%.

“Contractors beware: the inflation story is real,” said ABC Chief Economist Anirban Basu. “They say the cure for low prices is low prices. Early in the COVID-19 pandemic, several key commodity prices declined substantially, causing a diminished incentive for suppliers to invest in capacity augmentation.”

The result is that as demand increases, scarcity builds, and those low prices disappear, Basu explained. 

Suppliers are responding by investing more aggressively in capacity given the pursuit of higher sales amid higher prices. This eventually results in the pendulum swinging back toward lower prices, Basu said.

He expects global demand for steel, aluminum, oil and other materials to surge later this year as distribution of the coronavirus vaccine widens.

“The result could be substantial upward pressure on construction input prices,” Basu noted.

According to ABC’s Construction Confidence Index, 55% of contractors expect their sales to increase over the next 6 months.