Construction material prices climbed in March as rising oil prices reasserted themselves as a major cost driver across the construction supply chain, setting the stage for additional price increases in the months ahead.
Construction input prices increased 2.2% month over month in March, according to an Associated Builders and Contractors (ABC) analysis of the U.S. Bureau of Labor Statistics Producer Price Index data. On a year-over-year basis, overall construction input prices are up 4.8%, while nonresidential inputs climbed 5.4%, the largest annual increase since January 2023.
The March jump was largely fueled by energy costs. Although natural gas and unprocessed energy materials prices declined during the month, crude petroleum prices jumped 20.2%, reversing recent easing in construction-related inflation.
Todd Tomalak, Zonda building products principal, says, “Duration of the Iran conflict is unknown, but barring quick resolution, we expect two waves of price increases yet ahead.”
“The recent escalation in the Iran conflict has triggered a sharp oil price shock, which is already driving additional ~5% to 8% price increase announcements across building products, alongside higher mortgage rates. If elevated oil prices persist, building product volumes could contract by roughly 200 to 600 basis points, even as nominal prices move higher. The length of the shock, not the initial move, will determine the depth of demand deferral.”
With a similar sentiment, ABC chief economist Anirban Basu attributed the increase directly to higher oil prices due to the escalating Iran conflict. Basu says, “The rapid increase in diesel prices since late February, for instance, will raise shipping costs, putting upward pressure on virtually every construction material. Contractors remained confident that their profit margins would continue to grow, according to the March reading of the ABC Construction Confidence Index, and it will be interesting to see if that optimism persists in the event of prolonged oil market strife.”
Tomalak adds, “Many manufacturers will be forced to trade margin or share. As we noted to research clients this month, markets set prices, not individual suppliers. Current price increases in building products are more likely to trigger product substitution, favoring products that stand on their own rather than rely on bundling, and those that perform best with large builders and scaled retail channels.”
For builders and suppliers alike, the key variable remains duration. The longer oil prices stay elevated, the more significant the impact on construction costs, demand, and competitive dynamics across the building products landscape.
