Note: The post you’ve reached here was originally written in Jan 2016. For the latest information follow this link to the newest data on Inflation. 8-15-19
Thank You. edz
Jan. 31, 2016
Construction inflation for buildings in 2016-2017 is quite likely to advance stronger and more rapidly than some estimators and owners have planned.
Long term construction cost inflation is normally about double consumer price inflation. Construction inflation in rapid growth years is much higher than average long-term inflation. Since 1993, long-term annual construction inflation for buildings has been 3.5%/yr., even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8%/yr.
For the period 2013-2014-2015, nonresidential buildings cost indices averaged just over 4%/yr. and residential buildings cost indices average just over 6%/yr. I recommend those rates as a minimum for 2016-2017. Some locations may reach 6% to 8% inflation for nonresidential buildings but new work in other areas will remain soft holding down the overall average inflation. Budgeting should use a rate that considers how active work is in your area.
Infrastructure projects cost indices on average have declined 4% in the last three years. However, infrastructure indices are so unique that individual specific indices should be used to adjust cost of work. The FWHA highway index dropped 4% in 2013-2014 but increased 4% in 2015. The IHS power plant cost index gained 12% from 2011-2014 but then plummeted in 2015 to an eight year low. The PPI industrial structures index and the PPI other nonresidential structures index both have been relatively flat or declining for the last three years.
These infrastructure sector indices provide a good example for why a composite all-construction cost index should not be used to adjust costs of buildings. Both residential and infrastructure project indices often do not follow the same pattern as cost of nonresidential buildings.
Anticipate construction inflation of buildings during the next two years closer to the high end rapid growth rate rather than the long term average.