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Construction cost escalation in Australia and NZ continues trending back to normal rates
But declines in costs are not expected, rather, we expect positive escalation at more normal rates from the new, higher base
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This note provides a summary of Macromonitor's latest cost escalation projections.
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The latest cost index data in Australia and New Zealand continue to show a slowing of inflation from the peak rates of the post-COVID period. Average cost inflation across the construction sector peaked in the September quarter of 2022, at around 11% in Australia and 13% in New Zealand. But by the September quarter 2023, the rate of increase had trended down to just 4% in Australia and an estimated 5% in New Zealand (see chart below).
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The main factors influencing this deceleration of cost inflation are:
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- The flow-on effects from a decline in commodity prices, including metals, oil and timber prices,
- An improvement in supply chains and logistics, including a drop in international shipping rates back to pre-pandemic levels,
- An improvement in capacity constraints, including stronger labour supply growth as overseas migration flows return, and
- Weakening demand, in the building sector and the general economy, as a result of higher interest rates and a downturn in residential building.
These downward influences on costs are combined, however, with the continuation of some entrenched upward pressures. These include a continued very tight labour market, capacity constraints in the materials sector, and lower exchange rates for the Australian and New Zealand dollars.
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Over the year to June 2024, we expect a rate of increase of around 3% in Australia and just 2% in New Zealand.
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If you have a requirement for tailored cost escalation forecasts, please get in touch with Macromonitor, at info@macromonitor.com.au
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Construction Materials Forecasts
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Our latest forecasts assess the implications for construction materials demand of the current outlook for building and construction.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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