It's not just steel; inflation's back

Shortage price premiums for steel, sheathing, and fuel accounted for much of the 3.6% increase in materials costs for nonresidential building construction in the first quarter. Further increases at about the same pace are likely to be reported for April and possibly May. Last year, the price index rose 2.0% and was unchanged during the previous two years.

While the extreme prices for steel, sheathing, and fuel are temporary (spot prices were receding from their May peaks), the price trend for all materials abruptly changed from steady to rising at the beginning of the year under pressure from an expanding worldwide economy.

Nonresidential construction materials costs are expected to increase 2.5-3% annually into 2006, slightly faster than overall inflation in the economy. The gains will be much larger for commodities, such as sand and gravel, than for processed materials, such as concrete or glass. Steel and oil-based product price increases will outpace average materials inflation because of the expected large increase in world manufacturing usage, especially in Asia.