ABC: Construction Input Prices Hit 12.6% Annualized Rate to Start 2026

The Daily Dig

Construction material costs accelerated sharply to start 2026, with energy leading the charge. Nonresidential input prices rose 1.3% month over month in February. Natural gas climbed 10.9%, unprocessed energy materials rose 6%, and crude petroleum added 4.7%. Oil, copper, lumber, and steel all posted gains. Across all construction, prices are up 3.1% year over year, accelerating from 2.3% in January. For nonresidential specifically, that figure is 3.7%.

The two-month pace is what caught economists' attention. Prices rose at a 12.6% annualized rate across January and February, meaning the pace of increases seen in those two months, if sustained, would amount to 12.6% over a full year. ABC Chief Economist Anirban Basu called that "staggering," a sharp turn from ABC's characterization of January's increases alone as "not particularly concerning."

None of that data reflects what happened next. U.S. and Israeli strikes on Iran began February 28. Oil was already near $100 per barrel at the time of the report. Basu warned that higher oil raises diesel costs, which raises the cost of moving every other material to a jobsite. That pressure isn't in the numbers yet.

AGC Chief Economist Ken Simonson said disruptions to oil, natural gas, and aluminum supplies from the Middle East are already pushing costs higher and causing owners to delay projects. AGC CEO Jeffrey Shoaf was direct: there is a limit to how much the market can absorb before projects go on hold.

Fewer than one in four contractors expect margins to shrink over the next six months. Basu flagged that confidence as something to watch closely if prices keep climbing.

TheJobWalk Thoughts

Contractor margin expectations are a lagging sentiment. They reflect contracts already signed and backlog already locked in. The pain from $100 oil and accelerating material costs lands on work being priced right now, not jobs already under contract. Confidence built on existing backlog is not the same as confidence in what comes next.

For anyone pricing work today, escalation clauses are basic risk management. A fixed-price bid without price escalation language is absorbing commodity risk the owner should be carrying. That conversation is far easier before execution than during a dispute on a live job.

The owner delay signal from AGC is the one to act on quickly. When owners start pausing, projects that do move forward draw heavier competition. The window to get in front of key clients before budgets get recut is open right now and won't stay that way.