AGC warns of inflated costs of construction materials.

The Associated General Contractors of America (AGC) has released its latest Construction Inflation Alert (CIA) and warned of an inflation rate for construction materials of 6 to 8 percent.

Construction segments like highways that are most dependent on volatile prices for petroleum products are particularly vulnerable to such price increases, according to the report.

"Private owners, public agencies that do budgeting and design and contractors should all be aware that construction materials prices are likely to keep rising at a much faster rate than the 3-to-4-percent increase in the consumer price index (CPI) or broad producer price index (PPI) for finished goods," says AGC's Chief Economist Ken Simonson. "If these increases continue, I'm concerned that the inflation rate for construction materials could be double the rate of overall inflation."

Two factors make the construction industry vulnerable to above average cost increases, according to Simonson. First, contractors are generally locked into fixed quantities of materials and construction costs are vulnerable to transportation costs and bottlenecks. Unlike consumer electronics makers, for instance, contractors cannot generally make a building or highway smaller or lighter. In addition, contractors also require physical delivery of large quantities of goods to a specific location, in many cases from around the world and any number of influence can drive up delivered costs.

The AGC's CIA is an analysis done by Simonson of overall construction materials costs which finds that since early 2004, the construction industry has experienced a succession of steep price increases. The full report is available at www.agc.org/Sept06CIA.