Material price inflation starts to falter
Turner & Townsend economist Kristoffer Hudson starts a new monthly column with CM, looking at key economic indicators from around the construction industry. This month, he focuses on materials costs.
Rising costs for UK materials have started to tail off for the first time in three years, according to quarterly analysis of latest data from the Department of Business, Energy and Industrial Strategy (BEIS).
The rate of inflation faltered in the last quarter of 2019, with the ‘all work’ material price index decreasing by -1.4% on the quarter and -0.5% on the previous year (see chart 1).
Specific analysis shows inflation within the residential sector falling at a lower level than the overall average for all materials, as a rate of -1.2% on the quarter and -0.2% on the year.
Longer-term tracking indicates the important role housing material inflation has played as a driver behind the index as a whole over the past few years – with the cost of these components increasing 10.6% since Q2 2015, compared to 8.9% for other new work.
Expectations of a boost in construction demand – and subsequently, material costs – have risen on the back of government commitments to spend more on infrastructure as part of its ‘levelling up’ agenda. However, the short-term impact will be affected by emerging threats and volatility caused by the impact of coronavirus on global supply chains and the developing position that the UK takes on Brexit trade deal negotiations.
Concrete materials fall
Analysis of the BEIS data shows costs for concrete reinforcing bars, on an annualised basis, have consistently fallen over the last 12 months (see chart 2). Within the last six months to January 2020 costs for concrete reinforcing bars have dropped 9.0%.
Structural steel prices fell by 6.7% in the last six months following a volatile 18 months on global markets. This is partly in response to the high-profile trade wars between the US and China and an easing of global demand.
As an indication of wider price softening, there has also been a sustained drop in price for imported wood materials. Plywood and sawn wood from outside the UK fell by 7% in the last six months. Some of this price softening may be attributed to sterling strengthening against the dollar.
Kristoffer Hudson is an associate director at Turner & Townsend