Construction’s inflationary cycle turned the corner during 2006 and will continue heading downhill through 2007 and 2008, according to industry forecasts. ENR predicts that annual inflation measured by its cost indexes will decline as prices for most construction materials start to subside, after absorbing wave after wave of double-digit increases since 2004. But as the inflationary cycle moves into a new phase, it is shifting gears. Estimators say inflation is still sneaking into their bids as the large volume of work in the nonresidential building and civil works markets reduces competition and aggravates labor shortages.
Weaker material prices in 2007 will have the biggest impact on ENR’s Building Cost Index, which is forecasted to increase just 0.7% next year. Inflation measured by this index already had been easing, slipping to 2.6% this year after increasing 5.0% in 2005 and 9.7% in 2004.