Ask a developer what changed about planning a building over the past year and the answer is rarely design or demand. It is the price of everything that goes into the building. The producer price index for inputs to new nonresidential construction rose 8.9% from August 2025 to August 2026, according to the Associated General Contractors of America (AGC). That is a large jump for a single year, and anyone budgeting commercial construction today is working from numbers that were set long before it happened.
What is driving the increase
AGC points to two main culprits: petroleum products and metals subject to tariffs of up to 50%. Diesel fuel at the refinery or terminal level was up 77.8% year over year, and liquid asphalt rose 16.4%. Metals climbed as well. Aluminum mill shapes rose 27.3%, steel mill products 23.4% and copper and brass mill shapes 20.9%. The association ties the increases to conflicts in the Middle East and to steep tariffs on key materials.
Diesel matters even on jobs that never touch asphalt, because it fuels the trucks and equipment that deliver and place everything else.
The pressure is not limited to fuel and metals. In AGC’s analysis of July data, released August 13, lumber and plywood were up 9.9% from a year earlier, the most since March 2022. Paving mixtures and blocks rose 6.6%, a three-year high, and construction plastics rose 5.0%, the most since January 2023. Associated Builders and Contractors, which works from the same government data, reported that construction input prices rose another 1.2% in August alone.
Materials are only half of the picture. Average hourly earnings for production and non-supervisory employees, a category that covers most craft workers, rose 5.0% between August 2025 and August 2026, according to the government data AGC cited. The same measure for the whole private sector rose 3.3%. Contractors are paying more to keep crews at a time when wage growth elsewhere is cooling.
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Contractors have been absorbing the gap
Earlier data shows how long this has been building. In its June figures, released in July, AGC found that input prices were up 7.1% from a year earlier, while the index that tracks what contractors say they would charge to build a new nonresidential building had risen only 3.5%. AGC chief economist Ken Simonson said the difference suggested contractors were absorbing much of the increase in materials costs. Input costs have since climbed further, from 7.1% to 8.9% over the following two months.
By September, AGC chief executive Jeffrey Shoaf was describing the squeeze as a choice between pricing a firm out of the market and doing work at a loss. A gap like that is hard to sustain. It is reasonable for owners to expect more of the cost to show up in bids over time.
Projects are already changing
AGC surveyed its members in July and August with NCCER and released the results on September 3. More than half of respondents, 55%, reported having projects canceled, postponed or scaled back in the past six months. About a third of respondents pointed to rising costs as the cause. Another 13% cited longer or uncertain completion times, 10% cited changes in demand tied to tariffs and 6% cited changes in demand tied to the Middle East conflict.
Simonson said the survey shows cost increases are a major reason owners are canceling, postponing or scaling back work. AGC also noted that higher materials and labor costs are making it harder for many projects to pencil out, and that some developers have put planned construction on hold.
What owners and developers can do
None of this makes a project impossible. It does change how a careful owner plans one. A few practical habits matter more than they did two years ago.
Bring the contractor in early. For anyone planning a project right now, a budget written a year ago is probably out of date. Preconstruction pricing that reflects current material and labor costs gives you a real number to work with before design decisions are locked in.
Ask how price changes are handled. Find out how long a quote holds, whether the contract allows for escalation on volatile materials, and who carries the risk if steel, copper or fuel moves after signing. Vague answers here are where budgets quietly break.
Order long-lead items early. AGC’s Data DIGest for August 10 to 14 summarized the Institute for Supply Management’s July report and listed aluminum products, steel products, switchgear, and wire and cable among the construction items reported in short supply. Early procurement protects both price and schedule.
Build in contingency and flexibility. Phasing the scope, or designing alternates you can take or leave, lets a project keep moving if costs jump again instead of stalling while it is redesigned.
Keep the schedule honest. Thirteen percent of the firms AGC surveyed pointed to longer or uncertain completion times as a reason projects were disrupted. A timeline with no float is a cost risk as well as a scheduling one, because delays are what turn a locked price into a renegotiation.
Compare bids on the same basis. When two quotes differ widely, the gap often comes from what each contractor assumed about materials pricing, allowances and escalation. Ask each bidder to state those assumptions in writing so you are comparing like with like.
The outlook
AGC has called for resolving the trade disputes behind many of the new tariffs and for stronger construction workforce development. Whether or not that relief arrives, owners cannot plan around it. These are national indexes, and local pricing will differ, which is one more reason to get current quotes instead of relying on last year’s numbers. The projects most likely to get built in this market are the ones budgeted honestly, priced early and structured to absorb a surprise. The practical takeaway is to treat cost as something managed continuously through the project, not a number fixed once at the start.
