Construction escalation continues to grow. Labour, machinery, and equipment and material costs increased on the quarter and remain elevated. The rate of growth, however, is low and the strength of prior constraints are easing. Factors informing our escalation forecasts are:

• Current activity – low and slow growth. Areas of positivity exist, yet it is weak overall.
• Leading indicators – new starts constrained, albeit confidence should grow via rate reductions.
• Materials cost and availability – commodity, freight, and general material costs have picked-up.
• Workforce – softer wage growth in a cooling labour market. Skills shortages persist.
• Machinery and equipment – stubborn increases on the quarter maintain cost pressures.

Not much has changed from a broader macroeconomic perspective. The Canadian economy is a little stronger and Canada’s construction industry is a little weaker while input cost growth continues to be a key factor driving our escalation forecasts.

Contractor behaviour is starting to shift, though. Bid prices are becoming more competitive, spreads are lowering, and more firms can appear on tender lists. Some contracting firms may well be looking to bid strategically depending on project complexity, sector specific nuances and supply chain maturity. As such, our predictions for 2024 move down to 3.0 percent.

Our view is that this will likely be felt in 2025 as well and our previous forecast of 3.5 percent has been lowered to 3.0 percent on average. Wage growth has become less engrained than previously thought and weaker demand conditions, alongside fewer new orders in 2025, should apply greater consideration to bidding practices.

The BoC’s consecutive interest rate reductions will support demand growth, although that is likely to boost prospects in 2026 and beyond. This, combined with a shallowing out of escalation expectations in 2024 and 2025, should see 2026 escalation increase by 4.0 percent on average.