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What’s the Construction Inflation rate?
From Sept to Oct construction materials input price changes were normal, but Final Demand prices for October increased in one month by what could be considered an entire year’s increase. We’ve been watching the price pass thru catch up slowly, until now.
This is the single largest monthly increase in Final Demand pricing since final demand records began in 2006. Prior to this, based on changes in recent months, I expected future cost increases to add on slowly. So I wasn’t expecting the huge jump all at once. This may be some increases that were occurring over a few months that finally got captured in the index.
In October, the Final demand cost for Buildings and Trades averaged +12% year-to-date. In July, August and September it was between 5% and 6%. A change like this in one month has never occurred before. In fact, this one-month change is greater than any annual change on record. So, it resets the baseline for all forecasts.
For Oct, Nonresidential Buildings 2021 inflation is estimated at 6.8% and Residential at 15%. The forecast for 2022 is estimated at 4.5% for nonresidential buildings inflation and 7% for residential. See inflation and PPI data on my blog for more.
It must be noted that huge jump in nonresidential buildings inflation may not yet be picked up in many of the industry indices that we reference. Construction Analytics BCI is now updated to include the 11-10-21 PPI final demand inflation. Some sources update only quarterly, some semi-annually. After this event, I would expect to see a change in most other sources, which may update sometime over the next quarter.
One important thing, when inflation turns out to be higher than you thought, that means productivity is lower than you thought.
7-15-21 Final demand pricing is still well below materials price increases. However, it’s hard to visualize how more of the cost does not get passed on to consumer. I’m expecting future reports will show final cost inflation increasing.
11-10-21 Got That ^ right.
10-14-21 My current forecast for inflation in 2021 is now 4.5% for nonresidential buildings and 13% for residential. Residential inflation seems to have slowed but nonresidential is headed towards 5%.
11-10-21 Final Demand Bldgs and Trades prices for October gained a year’s worth of increase (6.5%) in one month for Oct. This is the largest monthly increase on record back to the start of these series, 2006.
11-16-21 My current forecast for inflation in 2021 is now 6.5% for nonresidential buildings and 14% for residential. I expected to see some increase, just not this much. The PPI reports give the first clues to pass thru costs.
See the most recent inflation comments 2021 Construction Inflation updated 10-15-21
Most years, inflation climbs at a steady rate. 2021 could end up being a year in which inflation is drastically different in one or two quarters vs the entire year.
8-13-21 As expected, many Final Demand prices surged in July by 1.5% to 2%.
10-14-21 Final Demand Trades prices up again since July. Some Buildings increased. Wood products have come way down, but almost every other material product has gone up, metals way up.
11-10-21 From Sept to Oct materials price changes were normal, but Final Demand prices jumped what could be considered an entire year’s worth of increase in just one month. We’ve been watching the price pass thru increase slowly, until now. This is the single largest monthly increase in Final Demand pricing that I can remember.
7-14-20 updated 8-28-20
Producer Price Index selected items year-to-date through June 2020. All values compare most recent June pricing to December 2019. Pricing represents 6-month change, not annualized change.
- -2.5% Inputs to new nonresidential construction
- -0.9% Inputs to new residential construction
- +1.0% Final demand construction
- -0.4% New Warehouse Bldg
- +1.2% New School Bldg
- +0.7% New Office Bldg
- +1.4% New Industrial Bldg
- +1.4% New Healthcare Bldg
- New work on nonresidential buildings
- +0.7% Concrete contractors
- +1.8% Roofing contractors
- +1.4% Electrical contractors
- +1.2% Plumbing contractors
- Selected Material Inputs
- -42.0% #2 Diesel fuel
- +2.7% Ready Mix Concrete
- +1.3% Precast concrete products
- +1.3% Flat Glass
- +0.1% Gypsum products
- +6.1% Lumber and Plywood
- -5.7% Steel pipe and tube
- -11.5% Aluminum mill shapes
- +2.2% Fabricated structural metal
- +10.3% Fabricated structural metal bar joists and reinforcing bars
- +11.9% Fabricated structural metal for non-industrial buildings
- -3.7% Fabricated structural metal for bridges
- -2.2% Fabricated steel plate
- +1.6% Iron and steel scrap
AGC does not publish year-to-date values. The data in this post is the combined effect of comparing June to March and March to December.
8-28-20 There were some pretty dramatic changes in July in the Producer Price Index selected items year-to-date. Edited here, all values compare most recent JULY pricing to December 2019. Pricing represents 7-month change, not annualized change.
- -1.0% Inputs to new nonresidential construction ytd through JULY
- +1.0% Inputs to new residential construction ytd through JULY
- +1.6% Final demand construction ytd through JULY
- +1.0% New Warehouse Bldg
- +1.8% New School Bldg
- +1.7% New Office Bldg
- +2.2% New Industrial Bldg
- +2.2% New Healthcare Bldg
- New work on nonresidential buildings ytd through JULY
- +0.5% Concrete contractors
- +2.2% Roofing contractors
- +1.7% Electrical contractors
- +0.7% Plumbing contractors
- Selected Material Inputs ytd through JULY
- -24.0% #2 Diesel fuel
- +2.8% Ready Mix Concrete
- +1.3% Precast concrete products
- +1.2% Flat Glass
- +0.3% Gypsum products
- +13.8% Lumber and Plywood
- -5.5% Steel pipe and tube
- -10.0% Aluminum mill shapes
- -1.0% Fabricated structural metal
- +0.8% Fabricated structural metal bar joists and reinforcing bars
- +0.4% Fabricated structural metal for non-industrial buildings
- +1.4% Fabricated structural metal for bridges
- +2.7% Fabricated steel plate
- -2.8% Iron and steel scrap
Price changes listed here are year-to-date 2019 through June. Change is for 6 months YTD, not annualized. As a reminder, the Producer Price Index (PPI) DOES NOT include imports (imports are not produced in the US) or tariffs. Only pricing for domestically produced materials is included. That would include any decisions domestic producers make influenced by tariffs on imported products.
Prices for years prior can be found PPI Construction Materials Inputs Index
When assessing or tracking the pricing affect of tariffs on construction materials, you need to understand that the Producer Price Index (PPI) does not include imports (imports are not produced in the US) or tariffs. See items 4 and 24 in the FAQ provided by the Bureau of Labor Statistics. Construction PPI changes reflect pricing decisions domestic producers make on domestic products in reaction to tariffs on imported products. Tariffs have big impact on domestic prices.
The price change we see in the PPI for construction materials reflects the domestic material prices of ALL other domestically produced materials used in the industry. While tariffs may affect only 10% of products used in the industry the PPI shows us the domestic producers reaction applied to the other 90%.
For example: Steel tariffs of +25% applied only on imported steel, affected only 30% (the imported share) of steel used in US. However the PPI shows us that all other domestically produced steel in the US and used in construction increased in price between 12% and 22% in 2018. Prices of domestic steel have receded somewhat, now ranging from +7% to +13%. But the point is that tariffs caused a price increase also in domestic steel.
The cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018 after the steel tariffs were imposed. That is domestic producers pricing response in reaction to tariffs. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. The increase has since receded but is still up 10%. Consumers pay the price.
This is a PDF of slides (including notes) from my
Construction Inflation & Forecasting Presentation
at Hanson Wade
Advancing Preconstruction & Estimating Conference
Dallas, TX 5-22-19
2-20-18 original post
Feb 2019 Tables and Plots updated to end of 2018
Producer Price Index of Materials Inputs to Construction. The 1st two plots are PPI Final Costs which includes all overhead and profit as sold. All other plots are PPI Input costs. Changes in PPI Input costs at the producer level may not reflect changes in actual pricing to contractors or changes in final cost as installed to building owner. Input Costs do not reflect retail markup or mark down and do not reflect overhead and profit markups that may change according to market activity.
PPI for Construction Inputs IS NOT a direct indicator of construction inflation. It does not represent selling price, the final cost of materials put-in-place which includes cost of labor, overhead and profit. See below link to description of Ovhd&Profit.
PPI Inputs and Inflation not only can vary widely but also may not even move in the same direction. See the above link for a table comparing PPI% vs Inflation%.
Specific Building and Contractor PPI Indices are Final Demand or Selling Price indices. They are plotted above.
Bureau of Labor Statistics Producer Price Index measures PPI cost of materials price at producer level. The PPIs that constitute Table 9 of the BLS PPI Report measure changes in net prices for materials and supplies typically sold to the construction sector, but do not represent the final cost installed. They are known as PPI Inputs. They are plotted below.
Here’s a brief summary of some of the PPI statistics tracked here:
- One year (2018) change
- biggest increases > Steel Pipe and Tube 21%, Fabricated Steel for Bridges 15%, Ornamental Metals 12%, Fab Structural Steel for Buildings 12%
- biggest declines > Copper and Brass shapes -6%, Lumber and Plywood -4%
- PPI Final cost of buildings and Trades up 4% to 6%
- Final cost of buildings posted largest increases since 2008.
- Final cost of trades (except for Roofing) posted largest increases since 2009.
- Steel Products posted largest increases since 2008
- Lumber and Plywood, which had risen dramatically (+30%) earlier in the year, now down 4% from Dec ’17
- Two year (2017+2018) changes
- biggest increases > Diesel fuel 45%, Steel Pipe &Tube 31%, Aluminum Shapes 16%, Fabricated Structural Metal for Buildings 16%, Ornamental metals 16%
- no declines over a two year period
Most stable pricing over last 5 years, these items did not change by more than 5%/yr in any given year during the last 5 years and net the smallest total change for 5 years: Concrete Brick and Block, Concrete Pipe, Ready-Mix Concrete, Plastic Products, Insulation, Fabricated Steel Plate, Sand/Gravel/Crushed Stone.
The Materials Inputs indices plots above are generated by indexing the December to December percent changes in the table below. Data updated to include Dec 2018 published January 2019.
@AGCofA @KenSimonson puts out tables and explanation of recent changes in producer price indexes and employment cost indexes for construction materials inputs, and building types and subcontractor final demand cost. Best source available. Watch this AGC page for monthly updates to the PPI
Articles Detailing 2018 Construction Outlook
Links will open in a new tab
These links point to articles here on this blog that summarize end-of-year data for 2017 and present projections for 2018.
Most Recently Published
2018 Starting Backlog & New Starts
2018 Spending Forecast
The Producer Price Index (PPI) for material inputs to construction gives us an indication whether costs for material inputs are going up or down. The PPI tracks producers’ cost to produce the product and supply finished products to retailers or contractors. However, that is far from the total cost from the contractor.
A good example is steel. The producer price for steel from the mill might be $750/ton for long beams and columns. The only increases captured at the producer level might be the changes in cost for raw material, energy to manufacture and the producers labor and markup. But the structural steel contractor is then responsible for delivery to shop, detailing, shop fabrication, transport to construction site, load and unload, cranes and welding equipment needed to install, installation crews and finally overhead and profit accounting for at least eight more points of potential cost change. Finally the steel subcontractor must then assess the market conditions, whether tight or favorable to higher profits, to adjust the bid price or selling price. The final cost of steel installed could be $3000/ton.
The PPI for Construction Inputs IS NOT a final indicator of construction inflation. It is an input to construction inflation. It does not represent the selling price, nor does it give any indication of the trend, up or down, of selling price.
In 2009 PPI for inputs was flat but construction inflation, as measured by final cost of buildings, was down 8% to 10%. In 2010, the PPI for construction inputs was up 5.3% but the selling price was flat. Construction inflation, based on several decades of trends, is approximately double consumer inflation. However, from mid-2009 to late 2012, that long-term trend did not hold up. During that period, PPI ranged from 0% to +6.8%, but construction inflation/deflation ranged from -10% to +2.3%, lower than PPI for all four years, something which seldom occurs. Construction inflation/deflation was primarily influenced by depressed bid margins, which had been driven lower due to diminished work volume.
The following table shows the differences between the PPI Inputs from 2011 to 2017 and the actual inflation for the major construction sectors. This table shows clearly that PPI Inputs and Inflation not only can vary widely but also may not even move in the same direction.
The PPI tables published by the Bureau of Labor Statistics do include several line items that represent Final Trades Cost or Whole Building Cost. Those PPI items don’t give us any details about the producer price or retail price of the materials used, but they do include all of the contractors costs incurred, including markups, on the final product delivered to the consumer, the building owner. I would note however that those line items in the PPI almost always show lower inflation than final Selling Price inflation indices developed separately from the PPI. Follow this link to table of inflation values which includes the PPI final cost for trades and buildings.
Construction Managers responsible for working with the client to manage project cost, part of which includes preparing a full building cost estimate, should not rely on PPI values as an indication of inflation. Selling price inflation indices are more appropriate indices to use to adjust project costs.
It is always important to carry the proper value for cost inflation. Whether adjusting the cost of a recently built project to predict what it might cost to build a similar project in the near future, or answering a client question, “What will it cost if I delay my project start?”, the proper value for inflation (which differs by sector and differs every year) can make or break your estimate.
Contractors responsible for a particular building material, although the PPI Inputs will not track market conditions sale prices from producer to the contractor, can get some indication of whether material prices are rising or falling. Contractors should be aware of PPI trends to interpret the data throughout the year.
PPI TRENDS HELP TO INTERPRET THE DATA
- 60% of the time, the highest increase of the year in the PPI is in the first quarter.
- 75% of the time, two-thirds of the annual increase occured in the first six months.
- In 25 years, the highest increase for the year has never been in Q4.
- 60% of the time, the lowest increase of the year in the PPI is in Q4.
- 50% of the time, Q4 is negative, yet in 25 years the PPI was negative only four times.
So when you see monthly news reports from the industry exclaiming, “PPI is up strong for Q1” or “PPI dropped in the 4th Qtr.” it helps to have an understanding that this may not be unusual at all and instead may be the norm.
- 10-24-16 Originally posted
- 2-10-19 updated index tables and plots to include Q4 2018 data
- 8-10-19 updated index tables and plots to include Q2 2019 data
- 1-14-20 added index table from 2015-2023 to include Q4 2019 data
- 11-10-21 updated index table from 2015-2023 including Q32021 data
- 2-11-22 added INFRASTRUCTURE index table Q4 2021
- 2-11-22 SEE Construction Inflation 2022
This collection of Indices and links is published in conjunction with these linked commentary
See the article Construction Inflation 2020
11-10-21 See 2021 Construction Inflation
2-11-22 See 2022 Construction Inflation
Construction Cost Indices come in many types: Final cost by specific building type; Final cost composite of buildings but still all within one major building sector; Final cost but across several major building sectors (ex., residential and nonresidential buildings); Input prices to subcontractors; Producer prices and Select market basket indices.
Residential, Nonresidential Buildings and Non-building Infrastructure Indices developed by Construction Analytics, (in highlighted BOLD CAPS in the tables below), are sector specific selling price composite indices. These three indices represent whole building final cost and are plotted in Building Cost Index – Construction Inflation, see below, and also plotted in the attached Midyear report link. They represent average or weighted average of what is considered the most representative cost indicators in each major building sector. For Non-building Infrastructure, however, in most instances it is better to use a specific index to the type of work.
The following plots of Construction Analytics Building Cost Index are all the same data. Different time spans are presented for ease of use.
See the article Construction Inflation 2022
All actual index values have been recorded from the source and then converted to current year 2017 = 100. That puts all the indices on the same baseline and measures everything to a recent point in time, Midyear 2017.
All forward forecast values wherever not available are estimated and added by me.
Not all indices cover all years. For instance the PPI nonresidential buildings indices only go back to years 2004-2007, the years in which they were created. In most cases data is updated to include June 2019.
- June 2017 data had significant changes in both PPI data and I H S data.
- December 2017 data had dramatic changes in FHWA HiWay data.
SEE BELOW FOR TABLES
When construction is very actively growing, total construction costs typically increase more rapidly than the net cost of labor and materials. In active markets overhead and profit margins increase in response to increased demand. When construction activity is declining, construction cost increases slow or may even turn to negative, due to reductions in overhead and profit margins, even though labor and material costs may still be increasing.
Selling Price, by definition whole building actual final cost, tracks the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor overhead and profit. Selling price indices should be used to adjust project costs over time.
quoted from that article,
R S Means Index and ENR Building Cost Index (BCI) are examples of input indices. They do not measure the output price of the final cost of buildings. They measure the input prices paid by subcontractors for a fixed market basket of labor and materials used in constructing the building. ENR does not differentiate residential from nonresidential, however the index includes a quantity of steel so leans much more towards nonresidential buildings. RS Means is specifically nonresidential buildings only. These indices do not represent final cost so won’t be as accurate as selling price indices. RSMeans Cost Index Page RS Means subscription service provides historical cost indices for about 200 US and 10 Canadian cities. RSMeans 1960-2018 CANADA Keep in mind, neither of these indices include markup for competitive conditions. FYI, the RS Means Building Construction Cost Manual is an excellent resource to compare cost of construction between any two of hundreds of cities using location indices.
Notice in this plot how index growth is much less for ENR and RSMeans than for all other selling price final cost indices.
8-10-19 note: this 2010-2020 plot has been revised to include 2018-2020 update.
Turner Actual Cost Index nonresidential buildings only, final cost of building
Rider Levett Bucknall Actual Cost Index published in the Quarterly Cost Reports found in RLB Publications for nonresidential buildings only, represents final cost of building, selling price. Report includes cost index for 12 US cities and cost $/SF for various building types in those cities. Boston, Chicago, Denver, Honolulu, Las Vegas, Los Angeles, New York, Phoenix, Portland, San Francisco, Seattle, Washington,DC. Also includes cost index for Calgary and Toronto. RLB also publishes cost information for select cities/countries around the world, accessed through RLB Publications.
Mortenson Cost Index is the estimated cost of a representative nonresidential building priced in seven major cities and average. Chicago, Milwaukee, Seattle, Phoenix, Denver, Portland and Minneapolis/St. Paul.
Beck Biannual Cost Report in 2017 and earlier cost reports developed indices for six major U.S. cities and Mexico, plus average. In the most recent Summer 2021 report, while Beck provides valuable information on cost ranges for 30 different types of projects, the former inflation index is absent. Beck has not published city index values since 2017. Read the report for the trend in building costs. See discussion for Atlanta, Austin, Charlotte, Dallas/Fort Worth, Denver, Tampa and Mexico
Bureau of Labor Statistics Producer Price Index only specific PPI building indices reflect final cost of building. PPI cost of materials is price at producer level. The PPIs that constitute Table 9 measure changes in net selling prices for materials and supplies typically sold to the construction sector. Specific Building PPI Indices are Final Demand or Selling Price indices.
PPI BONS Other Nonresidential Structures includes water and sewer lines and structures; oil and gas pipelines; power and communication lines and structures; highway, street, and bridge construction; and airport runway, dam, dock, tunnel, and flood control construction.
National Highway Construction Cost Index (NHCCI) final cost index, specific to highway and road work only.
The Bureau of Reclamation Construction Cost Trends comprehensive indexes for about 30 different types of infrastructure work including dams, pipelines, transmission lines, tunnels, roads and bridges. 1984 to present.
IHS Power Plant Cost Indices specific infrastructure only, final cost indices
- IHS UCCI tracks construction of onshore, offshore, pipeline and LNG projects
- IHS DCCI tracks construction of refining and petrochemical construction projects
- IHS PCCI tracks construction of coal, gas, wind and nuclear power generation plants
S&P/Case-Shiller National Home Price Index history final cost as-sold index but includes sale of both new and existing homes, so is an indicator of price movement but should not be used solely to adjust cost of new residential construction
US Census Constant Quality (Laspeyres) Price Index SF Houses Under Construction final cost index, this index adjusts to hold the build component quality and size of a new home constant from year to year to give a more accurate comparison of real residential construction cost inflation
TBDconsultants San Francisco Bay Area total bid index (final cost).
Other Indices not included here:
CoreLogic Home Price Index HPI for single-family detached or attached homes monthly 1976-2019. This is a new home and existing home sales price index.
Consumer Price Index (CPI) issued by U.S. Gov. Bureau of Labor Statistics. Monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should not be used to adjust construction pricing.
Jones Lang LaSalle Construction Outlook Report National Construction Cost Index is the Engineering News Record Building Cost Index (ENRBCI), a previously discussed inputs index. The report provides some useful commentary.
Sierra West Construction Cost Index is identified as a selling price index with input from 16-20 U.S. cities, however it states, “The Sierra West CCCI plays a major role in planning future construction projects throughout California.” This index may be a composite of several sectors. The link provided points to the description of the index, but not the index itself. No online source of the index could be found, but it is published in Engineering News Record magazine in the quarterly cost report update.
Leland Saylor Cost Index Clear definition of this index could not be found, however detailed input appears to represent buildings and does reference subcontractor pricing. But it could not be determined if this is a selling price index. A review of website info indicates almost all the work is performed in California, so this index may be regional to that area. Updated Index Page
DGS California Construction Cost Index CCCI The California Department of General Services CCCI is developed directly from ENR BCI. The index is the average of the ENR BCI for Los Angeles and San Francisco, so serves neither region accurately. Based on a narrow market basket of goods and limited labor used in construction of nonresidential buildings, and based in part on national average pricing, it is an incomplete inputs index, not a final cost index.
Vermeulens Construction Cost Index can be found here. It is described as a bid price index, which is a selling price index, for Institutional/Commercial/Industrial projects. That would be a nonresidential buildings sector index. No data table is available, but a plot of the VCCI is available on the website. Some interpolation would be required to capture precise annual values from the plot. The site provides good information.
Colorado DOT Construction Cost Index 2002-2019 Trade bids for various components of work published by Colorado Dept of Transportation including earthwork, paving and structural concrete.
Washington State DOT Construction Cost Index CCI for individual components or materials of highway/bridge projects 1990-2016
Minnesota DOT Highway Construction Cost Index for individual components of highway/bridge projects 1987-2016
Iowa DOT Highway Cost Index for individual components of highway/bridge projects 1986-2019
New Hampshire DOT Highway Cost Index 2009-2019 materials price graphs and comparison to Federal Highway Index.
New York Building Congress New York City Construction Costs compared to other US and International cities
U S Army Civil Works Construction Cost Index CWCCIS individual indices for 20 public works type projects from 1980 to 2050. Also includes State indices from 2004-2019
Comparative International Cities Costs – This is a comparative cost index comparing the cost to build in 40 world-wide cities If this International Cities Costs is a parity index, which involves correcting for difference in currency, then you must know the parity city in each country, which in the US I think is Chicago.
2-12-18 – Index update includes revisions to historic Infrastructure data
1-26-21 The tables below, from 2011 to 2020 and from 2015 thru 2023, updates 2020 data and provides 2021-2023 forecast.
NOTE, these tables are based on 2019=100. Nonresidential inflation, after hitting 5% in both 2018 and 2019, and after holding above 4% for the six years 2014-2019, is forecast to increase only 2.5% in 2020, but then 3.8% in 2021 and hold near that level the next few years. Forecast residential inflation for the next three years is level at 3.8%. It was only 3.6% for 2019 but averaged 5.5%/yr since 2013 and returned to 5.1% in 2020.
11-10-21 Follow the link at the bottom to 2021 Inflation
The Tables below 2001 to 2010 and 2011-2020 are updated to Q4 2021 with any revisions to past years posted on source websites.
The Table below 2015 to 2023 is updated to Q4 2021
How to use an index: Indexes are used to adjust costs over time for the affects of inflation. To move cost from some point in time to some other point in time, divide Index for year you want to move to by Index for year you want to move cost from. Example : What is cost inflation for a building with a midpoint in 2022, for a similar nonresidential building whose midpoint of construction was 2016? Divide Index for 2022 by index for 2016 = 110.4/87.0 = 1.27. Cost of building with midpoint in 2016 x 1.27 = cost of same building with midpoint in 2022. Costs should be moved from/to midpoint of construction. Indices posted here are at middle of year and can be interpolated between to get any other point in time.
All forward forecast values, whenever not available, are estimated by Construction Analytics.