PPI Jumps 24% in 12 Months, Preventing Contractors from Passing Along Cost Increases

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Increases in prices for wood, metals, plastics and gypsum continue to narrow the margin between what contractors pay to acquire raw materials and what they’re able to charge the project owner.

Ken Simonson, chief economist for the Associated General Contractors of America, said the construction industry Producer Price Index – which measures the average change over time in the selling prices received by domestic producers for their output – has climbed 24.3 percent over the past 12 months, increasing 4.3 percent in May 2021 alone. The 12-month climb, he says, is nearly double that of any previous year in history.

“This increase far outstrips contractors’ ability to charge more for projects,” said Simonson. “This gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”

Meanwhile, the PPI for new nonresidential construction – a measure of what contractors say they’d charge to build five types of commercial structures – increased only 2.8 percent over the past 12 months. AGC’s recent analysis included narrative from contractors across the nation who said they’d held their profit expectations down to compete for a limited number of new projects.

According to the AGC, the PPI for lumber and plywood more than doubled, increasing 111 percent from May 2020 to May 2021. The index for steel mill products increased 75.6 percent over the same period. The copper and brass mill shapes PPI rose 60.4 percent since May 2020, and the aluminum PPI rose 28.6 percent. The PPI for plastic construction products increased 17.5 percent, while the index for gypsum products such as wallboard climbed 14.1 percent.

Fuel costs, Simonson says, along with surcharges on freight deliveries, have also jumped.

AGC officials including CEO Stephen Sandherr, are urging the Biden administration to end tariffs and quotas on steel, aluminum and lumber as the first step toward easing pressure on construction costs and supply chain bottlenecks.

“Ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous allied countries, is good policy,” Sandherr said.

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