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Overall cost escalation / rise & fall to stabilise in 2025/26
But beware - differences by type of project and location require tailored forecasts
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Overall construction cost escalation in Australia is expected to stabilise in 2025/26, with a relatively consistent increase of around 2.5% to 3% across project types (see chart below).
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Macromonitor continuously monitors cost escalation, by each type of input, by type of project, and by each geographic region. We provide cost escalation forecasts and rise & fall indexes to many clients, in a wide range of sectors. The projections in this newsletter represent an aggregation of that work.
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In 2024/25, we saw a further easing of cost growth, as inflation continued to gradually decelerate from the peak of the post-COVID period. This is a normalisation in respect to the rate of increase, but the actual level of prices and costs is still greatly elevated compared with 2020. And costs are still rising from these lofty heights, even if at a slower rate.
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Most of the extreme constraints which pushed up costs so much a few years ago have dissipated, but some upward pressures remain:
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- The Australian dollar was generally quite weak during 2024/25, pushing up costs of imports
- Capacity constraints persist in construction materials and in the labour market
- Productivity growth remains weak
- Construction activity is still increasing overall, keeping upward pressure on all types of inputs.
With regard to the last point, strong construction growth in areas such as renewable energy, data centres and hospitals, will combine with continuing high levels of transport infrastructure, and the beginnings of an upturn in residential building, which will accelerate over the next two years.
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A mix of influences, however, should keep cost escalation rates in a relatively normal band of around 2.5% to 3.5% over the next two years. One wild card is the impact of tariffs in the United States. However, these are also likely to have a mix of inflationary and deflationary impacts, with the balance potentially not significant in either direction.
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If you have a requirement for cost escalation forecasts, or rise and fall indexes, for specific projects, or for a range of work types, please get in touch with us to discuss.
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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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