Costs are moderating

Posted On Friday, 05 December 2003 02:00 Published by eProp Commercial Property News
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BUILDER’s input costs are moderating in line with overall inflation

Construction IndustryCertain materials manufacturers have dropped their prices in absolute terms after having raised them substantially in 2002 as a result of the rand depreciation experienced in 2001. However, other manufacturers continue to raise their prices in excess of general inflation.
In its latest survey the BER has found that input costs are moderating in line with overall inflation. Labour costs, as measured by the consumer price index that serves as proxy, rose by 5,1% during the year ended August 2003. This is significantly below the 10,4% recorded in the year to August 2002. In similar manner, the average increase in building materials prices has dropped from 13,7% in the year ending July 2002 to 8,5% in the year to July 2003.

It seems as if the inflationary effects of the rand depreciation experienced during 2001 have worked their way through the system, with construction materials prices now having stabilised at much higher levels. In certain cases prices have actually declined from these higher levels (e.g. glass, basic forms of aluminium, and civil engineering plant). By contrast, other materials (aggregated crushed stone, cement building blocks, timber and reinforcing steel) have recorded price increases that exceed average inflation by a wide margin, the BER found.

The Haylett Formula (Work Group 180) is a composite index of labour, materials, plant and fuel. It represents the input costs of building contractors, but does not include contractors’ profit margins. Work Group 180 rose by 7,4% in the year to July 2003. This is substantially below the 12,2% increase recorded in the year ending July 2002. It is expected that this work group index will moderate further in coming months in line with overall inflation.

The BER says it is evident that the increases recorded in 2003 are lower than those of 2002. The average rise during the first three quarters of 2003 was 9,4%. This is lower than the average increase of 15,7% recorded in the year 2002. This moderation can be attributed to the following factors:

  • A general decline in overall inflation
  • Base effects – current levels are being compared to relatively high levels recorded a year ago;
  • Slightly keener competition in tendering.

Based on current trends, the BER foresees that the index could record an average rise of 8% during 2003.


Last modified on Friday, 25 October 2013 13:51

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