Monthly construction input prices increase in April

Construction input prices increased 0.8% in April 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 rose 0.9% for the month.

Construction input prices are up 23.7% from a year ago, while nonresidential construction input prices are 24.0% higher. Input prices were up in 10 of 11 subcategories in April. Softwood lumber was the only category in which prices decreased, falling 17.7% for the month. The largest price increases were in natural gas (+16.9%) and unprocessed energy materials (+10.3%).

“There are some economists who believe that inflation has peaked,” said ABC Chief Economist Anirban Basu. “Even if that were true, stakeholders should not expect dramatic declines in inflation in the near term given an array of factors placing upward pressure on prices: the Russia-Ukraine war, COVID-19, a shrunken labor force, elevated transportation costs and abundant demand for goods. Today’s PPI release indicates that producers continue to ask for and receive elevated prices for their limited production. These high input prices will continue to circulate through the economy as production continues, whether in the form of manufactured goods, buildings or infrastructure.

“According to ABC’s Construction Confidence Index, many contractors report that demand for their services remains sufficiently robust for them to pass along the bulk of their cost increases to project owners,” said Basu. “But at some point, the economy could weaken to the point that purchasers of construction services become less willing to pay elevated prices.

“The Federal Reserve is now in the middle of what will likely prove a lengthy monetary tightening process, and higher borrowing costs are rendering project starts less likely, all things being equal. That said, certain segments are likely to power through this dynamic, should it happen. That includes public construction, given the recent passage and ongoing implementation of a large-scale American infrastructure package. It should be noted that recent inflation has reduced the return taxpayers will get per dollar spent on infrastructure.”