"I think it will be a lot harder for developers to absorb thosekinds of increases this year," Simonson says. "I can't tell youexactly how many projects will be delayed or canceled or redesignedbut I am sure we will hear more of that." The last time PPI inputsincreased to such as significant degree was in 2004 and 2005. "Butthen, owners were eager to get the job done and accepted" thehigher costs.


This cycle, he says, material cost pressures will be muchgreater than labor cost pressures in most instances. "There is agreater availability of subcontractors that are no longer doingresidential work who can shift to commercial." Specialized laborfor industrial and high-rise projects might be the only exception,he says.


The costs may take some off guard as historically publicagencies have used a single figure--the CPI--for budgeting theacceleration of wages and construction supplies. This year Simonsonsays the CPI is expected to rise by 2.5% to 3.5%. Innon-inflationary times the CPI is an acceptable substitute for thePPI. This year, though, "anyone who thinks the CPI will be a goodguide for construction costs will be in for a shock."


Furthermore Simonson also predicts that 6% to 8% growth ratesfor construction input rates will last beyond 2008: First, manyconstruction inputs, such as diesel fuel, steel and copper are indemand worldwide. Second, construction will always be dependent onphysical delivery of heavy, bulky, relatively low-value materialsfor which transportation and fuel costs are a major part of thedelivered price.

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