Cost update: June 2006

Key trends

(up) Price increases faced by construction continue to outstrip inflation in most other industries
(up) Building costs continue to rise faster than M&E costs
(up) Record highs for world commodity prices impacting on metal-based components
(no change) Latest labour wage awards in line with other industry earnings

Over the past year, the Electrical Cost Index (3.8%) has risen at twice the rate of the CPI (1.9%) and the Building Cost Index by 6.9%, more than three-and-a-half times the CPI rate.

The Building Cost Index includes last summer's 9.5% wage award for building operatives. Construction materials prices rose on average by 2.3% over the year, though this hides a large variation in figures for different work sectors (see page 55).

The Mechanical Services Index has risen by 5.3%, including an increase in basic rates for heating and ventilating operatives of 5% last October. Materials costs have increased at a much faster rate than most others over the past year, in excess of 6%.

The Electrical Cost Index continues to record the lowest inflation increase of the three measures. This is largely the result of electrical engineering materials prices remaining relatively immune from the huge increases in copper and other metals prices.

Price adjustment formulae for construction contracts

Price Adjustment Formulae indices, compiled by the DTI and ONS, are designed for the calculation of increased costs on fluctuating or variation of price contracts. They provide useful guidance on cost changes in various trades and industry sectors and on the differential movement of work sections in Spon's Price Books.

Over the past nine months, between July 2005 (when last summer's building wage award kicked in) and April 2006, the average change in the 60 building work categories has been a rise of 1.9%. The categories showing the greatest divergence from this average movement are:

Metal: Decking  -4.7
Piling: Steel -4.1
Windows and doors: Steel -3.6
Glazing -2.7
Raised access floors -2.4
Cladding and covering: Aluminium +5.8
Pipes and accessories: Aluminium +5.9
Cladding and covering: Zinc +9.7
Cladding and covering: Lead +11.3
Cladding and covering: Copper +17.3
Pipes and accessories: Copper +18.7

Most of the negative figures are associated with steel. Further falls are unlikely, however, as the spring has brought a recovery in steel prices. The major European steel producers have announced further price increases of up to *50 (£35) a tonne from July.

All the positive figures above are associated with base metals. The highest figures relate to copper, the subject of a dramatic shift in price. Zinc prices have increased even more over the past year and have quadrupled in two years. Aluminium prices have not shown quite the same level of growth but almost doubled over the past year before falling back a little in mid May.