Input cost inflation drops to two-year low as year-ahead outlook strengthens to 11-month high
Subdued market conditions have reportedly been a key constraint in overall sector performance, but the rate of input cost inflation eased to a two-year low, while lead times lengthened to the least extent since February 2020, indicating easing cost and supply pressures. The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index posted at 47.7 in January, up from 43.2 in December and indicative of a fourth successive monthly reduction in Irish construction output at the aggregate level.
The latest decrease was notably weaker than in December and the softest since the current downturn first began in October 2022. Broken down by sector, the contraction was broad-based but softer across all three monitored categories. Civil engineering firms recorded the strongest decline, while commercial activity saw the softest fall and housing activity declined for the fourth month in a row. Firms reportedly struggled to secure new orders and registered another contraction in January. Nevertheless, there were tentative signs of improvement, with the latest reduction being the joint-weakest in the current ten-month sequence of decline.
Although Irish construction firms faced another round of sharp input cost inflation, the rate of inflation softened for a second month in a row and was the least pronounced in two years. In contrast, sub-contractor rates increased at an accelerated and marked pace. Supply pressures eased in January, highlighted by the softest lengthening in lead times since February 2020. However, January data pointed to sustained falls in sub-contractor availability, usage, and quality.
Commenting on the latest survey results, John McCartney, Director & Head of Research at BNP Paribas Real Estate Ireland, said, “Construction slowed slightly in January, but this month’s PMI is distinctly more upbeat than those of recent months. Although input costs are still rising, the rate of increase is at its slowest for two years. Moreover, there are positive signs for the year ahead. With confidence at an 11 month high, housing commencements have picked-up strongly in recent months, construction firms have resumed hiring, and 85% of builders now expect to be as busy or busier in one year’s time.”
