Construction material prices rose in March, reversing a period of stability. This increase is tied to higher oil costs, driving up prices in the sector. If the trend continues, contractors may face a second wave of cost escalation.
According to data from an Associated Builders and Contractors (ABC) analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index, prices rose 2.2% month-over-month in March and were up 4.8% year-over-year.
This isn’t a sudden, one-off spike—it’s a return of inflationary pressure. While construction prices eased earlier due to lower energy costs, they are starting to rise again as energy costs continue to climb. Meanwhile, crude oil is up by 20.2%: this rapid increase over a relatively short period has been linked to geopolitical instability and supply concerns, making the situation uncertain for contractors.
“The rapid increase in diesel prices since late February…will raise shipping costs, putting upward pressure on virtually every construction material,” said ABC Chief Economist Anirban Basu. “Contractors remained confident that their profit margins would continue to grow, according to the March reading of the ABC Construction Confidence Index, and it will be interesting to see if that optimism persists in the event of prolonged oil market strife.”
Why oil matters
Oil affects every single stage of the supply chain. Diesel drives transportation and shipping costs, while energy is the core input behind manufacturing materials like steel, cement, and asphalt.
Oil-based products are embedded in many construction materials, which makes them a crucial part of the process. Oil is found in everyday building components such as PVC piping in plumbing systems, sealants used for window installations and exterior joints, roofing products on residential and commercial buildings, and insulation, such as spray foam for walls. In short, everything is tied to oil, and rising oil prices directly impact logistics and the materials contractors use.
What makes this situation difficult to navigate is the timing. Increases in oil prices typically take several weeks to trickle down through the supply chain and show up in costs. By the time this impact hits a purchase order, the market will have shifted further. That’s why acting early—locking in pricing, confirming supplier commitments—is more important than waiting for a clear picture.
What’s next
Contractors should brace for all possibilities and expect a second wave of increases, likely ranging from 5% to 8%.
What’s worth noting is this goes beyond the spike—it’s about how long current trends will continue. If oil prices stay elevated, it’s safe to assume that material costs will continue to rise. On the other hand, if they do manage to go down quickly, the impact may be relatively limited.
To avoid major price hikes, contractors should lock in prices sooner rather than later and ensure commitments are in writing where possible.
What this means for contractors
Contractors can expect margin compression amid rising material costs. There’s also a higher likelihood of project delays and material substitutions. While taking on new projects, contractors can expect tighter, more conservative bids.
They can take a few actions to mitigate risk, such as including price-escalation clauses in bids to protect against material price swings, stress-testing bids, and reducing bid validity periods. Contractors can also plan for material substitutions in advance.
On the client side, the ABC data presents a useful opportunity. Rather than absorbing price increases, the data provides a credible basis for direct conversations with clients around current market conditions—and why pricing from several months ago no longer reflects reality.
That said, contractor confidence remains strong for now, and it remains to be seen how things will play out in the next few months.
Potential industry impact
If oil costs remain high, the pressure will extend beyond material prices. Projects may stall if total costs exceed owners’ budgets, which heavily affects contractors’ pipelines and backlogs. Suppliers will face pressure on their margins and may start limiting availability to protect themselves. It’s worth keeping an eye on material commitments and project pipelines over the next few months.
What’s clear is that the construction industry is not just reacting to the recent spike. How long oil prices remain elevated will determine the magnitude of the impact—and right now, nobody knows the answer. But what contractors can control is their preparedness for a second wave.
Material costs don’t stay stagnant. Keep up to date with the latest pricing trends and market shifts impacting contractors by following us on LinkedIn and subscribing to our weekly newsletter.
