Construction materials prices have managed to do their best Chevy Corvette imitation, zooming away from their normal trajectory over recent quarters. Many factors are at work, including lingering global supply chain disruptions, worker shortages, rapid economic recovery, a shifting regulatory environment, and investor speculation in key commodities. Elevated inflation has managed to insinuate itself into virtually every aspect of American life, but infrastructure contractors are feeling the pain more than most.
Compiled by the U.S. Department of Transportation, the National Highway Construction Cost Index (NHCCI) measures “national average changes in highway construction costs over time”. The quarterly index fixates on shifts in the price of critical highway construction components. These include asphalt, base stone, bridge, concrete, drainage, and electrical services to list a few.
Violent swings in materials prices tend to accompany periods of economic stress as well as periods of rapid economic recovery. For instance, in 2008, as the global financial crisis approached, the Index’s primary reading expanded from 1.57 at the year’s onset to 1.78 by the third quarter. A closer look at constituent components indicates that the increase was primarily due to an increase in the price of asphalt, which rose 4% and 6% during the 2nd and 3rd quarters, respectively.
Construction materials prices were rising prior to the pandemic in the context of strong economic growth. There was a period of decline in these prices as the economy was undone by the early stages of pandemic. Many input suppliers responded by slashing output and capacity. That along with vigorous economic recovery set the stage for rapid price growth, which is exactly what has transpired.
According to the latest data, which extends to 2021’s third quarter, the NHCCI rose more than 10% on a year-ago basis. These data do not reflect the most recent run-up in prices, including price increases resulting from the Ukraine/Russia conflict or recent economic lockdowns in China, which continues to pursue zero-Covid policy. According to data from the Bureau of Labor Statistics that measures the overall cost of construction input prices, industry input prices were up 24.4% between March 2021 and March 2022.