KEY POINTS
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In 2025, construction material prices rose at the fastest rate since the post-Covid spike.
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Specific construction materials, including steel, aluminum, and concrete, have seen significant year-over-year increases.
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Construction input prices are rising faster than final bid prices, potentially shrinking firm’s profit margins.
Construction material prices rose 6.2% across 2025 according to the Bureau of Labor Statistics Producer Price Index. This jump marked the largest single-year increase since the pandemic-related price spike in 2021.
Tariffs Drive 2025 Price Increases
Much of the increase in 2025 can be attributed to tariffs levied on important trading partners. These tariffs, especially ones targeted at steel, aluminum, and copper, caused significant price increases in key construction inputs.
Specifically, a ConstructConnect report found that the PPI for aluminum mill shapes increased by more than 30%, and steel bars, plates, and structural shapes rose by 12.1% in 2025.
Price hikes were also seen in plumbing fixtures, precast concrete products, construction machinery and equipment, and several other key material inputs.
Wage Growth Compounds the Issue
The pressure from rising material prices could be exacerbated by construction wages that have continued to rise by 4% annually.
In addition, construction labor growth was muted in 2025, with employment slightly falling over the year. If this trend continues, labor costs could rise further as supply remains constrained.
Construction bid prices lagged behind the steep increases in costs in 2025. From December 2024 to December 2025, final construction bid prices rose 2.7%, significantly lower than both material and labor costs. Image: ConstructConnect
This is significant because, together, materials and labor make up around 70% of a project’s typical expenses. This means that over two-thirds of projects’ costs saw significant increases across 2025.
Looking to the Future
Construction bid prices lagged behind the steep increases in costs in 2025. From December 2024 to December 2025, final construction bid prices rose 2.7%, significantly lower than both material and labor costs. This means firms could be faced with shrinking margins with cost growth outpacing project revenue increases.
Success in 2026 will require vigilant management of materials. To protect profit margins against rising material costs, construction firms should consider incorporating escalation clauses in contracts to share the risk of price fluctuations, strengthening supplier relationships, and locking in material prices early to limit volatility.
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