Rising construction material costs in early 2025 were driven largely by increased demand ahead of newly implemented tariffs, according to the Associated Builders and Contractors.

On March 4, the Trump administration imposed a 25% tariff on imported steel and aluminum alongside a 25% tariff on various products from Canada and Mexico and an additional 10% tariff on goods from China. 

These measures, taken as a whole, have heightened concerns about rising costs in the construction industry.

In its latest U.S. Bureau of Labor Statistics Producer Price Index data analysis, ABC reported that construction input prices rose 0.6% in February. Nonresidential construction input prices mirrored this increase. 

Overall construction input prices were 0.3% higher than a year earlier, while nonresidential construction input prices were down 0.1% year over year.

Iron and steel, steel mill products, and softwood lumber saw sharp price increases in February. ABC Chief Economist Anirban Basu said these rises reflect domestic producers' increased pricing power.

Iron and steel prices increased by 3.9% compared to the previous month. However, they remained down by 13% compared to the same month a year earlier. Softwood lumber increased 2.8% month on month and rose 10.9% year on year.

“Nonresidential input prices increased at a rapid pace in February and have risen at a far-too-hot 9.0% annualized rate through the first two months of 2025,” Basu said. “Iron and steel prices rose at a particularly fast rate in February, a result of tariffs providing domestic producers with increased pricing power."

Despite recent increases, nonresidential input prices remain lower year over year. However, Basu warned that this trend is unlikely to continue.

“That will likely change in the coming months as tariffs continue to put upward pressure on prices,” he said. 

“While ABC members are, on balance, still optimistic about their profit margins, 23% of them expect their profitability to decline over the next six months, the highest share since October 2024,” Basu added.

Construction material prices rose 1.4% in January, and nonresidential construction input prices increased 0.9%. Overall, construction input prices climbed 1.3% year over year.

Basu attributed the January price surge to multiple factors, including energy cost increases, producers' typical beginning-of-year price hikes, and a rush to purchase materials before tariffs took effect.

“Materials prices increased at the fastest monthly pace in two years in January,” Basu said. “This rapid escalation is largely due to three factors. First, energy prices rose sharply. Second, producers often raise their prices at the start of the year. And third, many purchasers rushed to buy inputs before potential tariffs could go into effect, and that surge in demand pushed prices higher.”

Energy prices also increased significantly in January, with crude petroleum rising 14.8%, natural gas up 13.7%, and unprocessed energy materials climbing 13.0%.

5 Takeaways

• Pre-Tariff Demand Surge — Builders rushed to buy materials before tariffs took effect, driving up construction costs in early 2025.  
• Tariffs on Key Imports — The Trump administration imposed 25% tariffs on steel, aluminum, and other goods from Canada, Mexico, and China, raising cost concerns.  
• Rising Material Prices — February saw a 0.6% increase in construction input prices, with iron, steel, and lumber seeing sharp spikes due to domestic producers' pricing power.  
• Profitability Concerns — Despite some optimism, 23% of builders expect profit margins to decline over the next six months, the highest share since October 2024.  
• Tariffs May Keep Prices High — While energy and seasonal price hikes contributed to cost increases, experts warn that tariffs will be the primary long-term inflation driver.

Basu warned that tariffs may continue to fuel price hikes. 

“Of these three factors, tariffs are the only one that could continue to push input prices higher in the coming months,” he said. “Import taxes allow domestic producers to raise their prices, and the new 25% levies on steel and aluminum will result in just that if they remain in place.”