Modeling Inflation Transmission among Different Construction Materials
Publication: Journal of Construction Engineering and Management
Volume 150, Issue 5
Abstract
Cost estimating in the construction industry is challenging due to the high uncertainty associated with the supply chain, especially after the COVID-19 pandemic. Some research studies have addressed such problems by developing models that predict material cost. In fact, all material can be interconnected and interrelated with lead-lag relationships such that any inflation in one material’s price can be associated with inflation in other materials’ prices, referred to as transmission of inflation. Despite the latter, none of the existing studies have investigated inflation transmission among all construction materials. This paper fills this knowledge gap. The authors used a multistep research methodology. First, Producer Price Index (PPI) data for 16 construction materials were collected and sorted. Second, the vector autoregression technique was used to model the relationships between each pair of material and subsequently validate the associations using the Granger causality test. Third, network analysis was performed to identify the inflation transmission capacity (out-degree centrality), inflation susceptibility (in-degree centrality), and inflation intermediatory capacity (betweenness centrality) for each material. Finally, modularity-based clustering was conducted to categorize the materials based on their price indices’ interconnections and examine inflation transmission path among different sectors of construction-related material. The results show that metals and plastic products are generally the highest transmitters of inflation to other construction material including “Fabricated structural metal products” and “Plastic construction products.” Furthermore, the results show that “Concrete products,” “Flat glass,” “Brick and structural clay tile,” and “Architectural coatings” are also high transmitters of inflation and thus can be key indicators of increase in the overall construction cost. This paper provides the industry stakeholders with leading indicators and early warning signs for the inflated material prices. Contractors and owners can utilize those warning signs to enhance their procurement plans and budgeting decisions.
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Data Availability Statement
All data, models, and code generated or used during the study appear in the published article.
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Published In
Journal of Construction Engineering and Management
Volume 150 • Issue 5 • May 2024
Copyright
© 2024 American Society of Civil Engineers.
History
Received: Apr 15, 2023
Accepted: Nov 27, 2023
Published online: Feb 21, 2024
Published in print: May 1, 2024
Discussion open until: Jul 21, 2024
ASCE Technical Topics:
- Business management
- Concrete construction
- Construction (by type)
- Construction costs
- Construction engineering
- Construction management
- Construction materials
- Contracts and subcontracts
- Electric power
- Energy engineering
- Engineering materials (by type)
- Materials engineering
- Metals (material)
- Plastics
- Power transmission
- Practice and Profession
- Pricing
- Project management
- Synthetic materials
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