Construction input costs surged sharply at the start of 2026, raising fresh concerns across the industry about project affordability and future activity levels.
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According to new data analyzed by the Associated Builders and Contractors, construction input prices climbed at a “staggering” annualized rate of 12.6% during January and February. The spike was largely driven by rising energy costs, even before the latest geopolitical tensions began impacting global markets.
On a monthly basis, nonresidential construction input prices increased 1.3% in February alone, while year-over-year costs were up 3.7% compared to the same time in 2025.
The early-year escalation was heavily influenced by increases in key energy-related inputs such as natural gas, crude petroleum and unprocessed energy materials.
“Notably, this data does not reflect the precipitous increase in oil prices, which are near $100/barrel as of this morning, caused by the conflict in Iran,” said Anirban Basu.
The implications of rising oil prices extend far beyond fuel costs, affecting the entire construction supply chain.
“That will put upward pressure on construction materials prices directly by raising diesel prices and, indirectly, by raising the cost of shipping other inputs,” said Basu. “Which is to say, materials price escalation could serve as a real headwind to construction activity over the next several months.”
Before the geopolitical escalation, natural gas prices had already jumped 10.9% month over month in February, while unprocessed energy materials rose 6% and crude petroleum increased 4.7%. Other essential materials such as copper, lumber and steel also recorded notable gains.
“Construction materials costs surged in February due to significant increases in oil, copper, lumber and steel prices,” said Basu.
While contractors have so far remained relatively optimistic, there are signs that rising costs are beginning to influence project timelines and investment decisions.
“Fewer than 1 in 4 contractors expect their profit margins to shrink over the next six months,” Basu said. “Those expectations will bear close monitoring if input prices continue their rapid ascent.”
However, economists warn that continued volatility could quickly shift sentiment across the sector.
According to the Associated General Contractors of America, higher material costs are already affecting owner behavior.
“The disruption of oil, natural gas, and aluminum supplies from the Middle East is pushing up construction costs further and causing owners to delay projects,” said Ken Simonson.
Industry leaders say the cumulative impact of cost increases is becoming more concerning, even if year-over-year growth appears modest at first glance.
“While input prices are still up a relatively modest 3.1% since February 2025, they rose at a staggering 12.6% annualized rate during the first two months of 2026,” said Basu.
The pressure is increasingly being felt by project owners, who ultimately fund construction activity.
“There is a limit to how many price increases the market can absorb before owners put projects on hold,” said Jeffrey Shoaf. “Reducing uncertainty around tariffs and stabilizing supply chains would go a long way toward helping contractors keep projects moving forward.”
The latest surge in construction costs highlights the industry’s continued vulnerability to global supply chain disruptions and energy market volatility.
Key contributing factors include:
Looking ahead, contractors and developers may adopt several strategies to mitigate cost pressures:
If current trends continue, the industry could see a slowdown in new project starts, particularly in cost-sensitive sectors like commercial and multifamily construction.
At the same time, infrastructure and energy-related projects may remain more resilient due to public funding and long-term demand.
Originally reported by Joe Bousquin, Senior Editor in Construction Dive.
