Inflation had its last hurrah during the first half of this year and it was quite impressive with both steel and oil prices soaring to record levels despite a subprime mortgage crisis that was destroying the housing industry. But then the Fat Lady sang and the full extent of the financial crisis started to reveal itself. With banks, insurance companies, Wall Street investment firms and the automotive industry all lining up for bailouts, commodity prices started to tumble. Oil prices fell from over $140 per barrel to less than $70. Steel prices also started to head down and economists expect them to keep falling through most of next year. Unemployment started to soar, and will undermine wage negotiations next year. To make matters worse, the problem is worldwide with Asia, Europe, the Middle East and Latin America all struggling. Demand is drying up and that is driving prices down.
With that dismal backdrop, ENR predicts that its Building Cost Index, after rising 5.3% this year, will post a rare 0.5% decline in 2009 as steel, lumber and cement prices all fall. However, materials only make up 20% of ENR’s Construction Cost Index. As a result, the CCI is projected to increase 1.2% by the end of next year, after climbing 5.7% in 2008.