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New Zealand annual construction cost inflation hits lowest levels since 2020
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The building and construction industry in New Zealand has experienced a marked slowdown in cost inflation, signaling a significant shift from the heightened levels of recent years. Although there are variations among specific cost items, overall inflation is now running at low rates of increase, albeit from a high base due to substantial increases in recent years.
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Recent data shows cost inflation slowed to 1.1% in the year to September 2024, a dramatic drop from the 14% peak in mid-2022. This is the lowest annual inflation rate since June 2020, when it stood at just 0.4%.
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The slowdown in cost inflation during 2024 can be attributed to several factors. Falling prices for key materials like steel and oil have significantly reduced input costs. Improved supply chains, both globally and locally, have eased logistical disruptions that previously strained the industry. A slowdown in construction activity, particularly in the residential sector, has further alleviated demand-driven cost pressures. Additionally, a softer labour market, characterized by slower wage growth and reduced demand for workers, has contributed to the easing of inflation.
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However, some inflationary pressures persist. Construction equipment costs remain a source of inflationary pressure. Moreover, potential global risks, such as U.S. tariff policies affecting import prices, could impact future cost trends.
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Looking ahead, our forecasts indicate that annual construction costs will rise modestly, by 2.8% in 2025 and 2.4% in 2026, reflecting a gradual return to long-term growth patterns.
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While declines in some costs are evident, a full reversal to pre-2021/22 price levels is unlikely. Instead, construction costs are expected to stabilize and grow at more normal rates, but from the current elevated base.
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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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