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Leading indicators point to lower construction materials cost inflation
Drops in commodity prices and other indicators will flow through to falls in materials prices over the 12 months
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Over the last 12 months, construction costs have been rising rapidly, with materials and fuel prices leading the way. All types of costs have been rising more quickly than usual, including equipment, services and labour costs. But prices of materials have, on average, been increasing more, and were the first cost category to see accelerating inflation during the first half 0f 2021.
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In the cost escalation work we are currently doing for clients, our forecasts include a moderation of price increases, or even a reversal (lower prices), over the next 12 months. So it is useful to look at some of the leading indicators which are providing evidence of this imminent correction in costs.
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The charts below show the latest data for some of these indicators.
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These indicators provide evidence of falls in prices from recent very high levels. The commodity prices shown above will influence a wide range of construction materials and products, including: all types of steel products (such as roofing, structural steel, pipes, steel reinforcing etc.), aluminium building products, electrical wires and cables, fuel, bitumen, plastic pipes, structural timber, and more. An improvement in shipping costs with also impact a wide range of products and materials.
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It is important to note that these indicators do not tell the full story. Higher than usual cost increases will persist for many construction inputs, such as labour, services, plant hire, and products not affected by international pricing, such as concrete. And the continued high rate of wage increases will offset the declines in basic commodity prices, even for those materials directly affected by international pricing, as a result of the local component of prices, including transportation and local processing.
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But, in some areas, there will also be an easing of cost pressures within Australia, as a result of falls in building activity (mainly houses), plus the impact of rising interest rates on building work and on the general inflationary environment.
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Overall, we expect the rate of construction cost inflation to gradually return to a more normal level over the next 12 to 18 months.
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If your organisation requires help with project cost escalation forecasts, please get in touch with us, 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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