Infrastructure Industry Index

The Height index shows that labour within the construction/infrastructure industry has grown at a faster rate than the overall LCI since Q1 2020, with a 21% increase opposed to the LCI with 11% pa in the same period.

Over the last three years high inflationary pressure has driven consistent high growth in labour costs within the construction sector with percentage increases between 3.8% and 4.4%.

Materials, as expected showed a spike during COVID. However, our graph shows a significant decrease from 13% down to 2% pa over the last year. This is likely due to the global economy weakening, which has taken the heat out of international commodity prices and shipping costs.

The annual growth of this index (excluding Diesel) has fallen from 9.5% to 3.76% pa since last year. This shows that the overall rate of increase for cost of construction / Infrastructure is slowing. This is reflective of the latest CPI, which had its lowest quarterly increase of 4.7% since 2021.

To highlight and hammer home the impact of inflation, take a look at our Tradies lunch box index (our index that tracks the price of a pie and can of V). For the first time in NZ history, the Tradies lunchbox has reached the double digits and is now priced at $10.00. 

After inflation peaking in Q3 of 2022 at 7.2% we have continued to see a drop with the most recent figures in Q2 of 2024 showing 3.3%. The RBNZ has responded by decreasing the OCR by 25 basis points which has lead to the banks slashing their interest rates. Although this does signify the end to a high inflationary economy, the storm has not yet subsided with businesses still facing considerable challenges and many forced to make difficult strategic decisions.

Although our Labour index has shown a consistent growth of around 3-4% over the previous 4 years, we do expect this to drop slightly as the impact of businesses being forced to restructure comes to the forefront.

Interestingly, our Transport index has shown an increase of 6% which is in line with ANZ’s NZ Truckometer index that tracks the amount of heavy vehicles on the road which tends to provide a good steer on goods production and freight in real time. This suggests that although truck traffic remains low, there are signs of an improving economy.

Heights Construction Index has continued to increase at a significantly lower rate than what we were experiencing in 2022 where it rose around 10% annually. Now just at 2.89% it sits within the RBNZ inflationary target band which suggests that we are back at a manageable position where price hikes overall are not making considerable impacts on the cost of construction.

Almost mirroring the Construction index, Heights Maintenance index shows a similar trend with the annual percentage increase sitting at just under 3% for Q2. The cost for labour and plant are the key contributors holding this percentage up with a 3.2% and 4.3% increase respectively for Q2. As we see these costs reduce over the coming months, our Construction and Maintenance index figures should follow.

Tradies will be jumping for joy, or perhaps a second pie as the rise in costs for our Tradies Lunch Box has reduced from 11.26% in Q2 of 2023 to 4.29% for Q2 2024. This equates to a net $170.38 saved over a year or just over 16 extra meals..

The annual growth in labour costs continued its downward trajectory in Q4 2024, aligning with broader economic trends. From its peak of 4.35% in Q4 2022, wage inflation in the infrastructure sector has cooled to 2.56% as of Q4 2024. This slowdown reflects an increasingly competitive labour market, where restructuring, rising unemployment (5.1% as of December), and subdued hiring demand have strengthened employers' negotiating positions.

The Reserve Bank of New Zealand reduced the Official Cash Rate (OCR) by 25 basis points in November 2024, bringing it down to 4.75%. Inflation has stayed within the RBNZ's target band (1–3%), and business confidence edged up in December after nearly a year of negative sentiment. Lower interest rates are expected to ease borrowing costs for infrastructure contractors/developers and public-private partnership projects. Forward indicators suggest optimism for a recovery in construction activity mid to late 2025.

Our construction index for the first time since Q4 2020 has seen a decline, with a -0.09% increase in costs relative to the same quarter a year prior. The reduction in cost increases is largely driven by ongoing stability in global supply chains and a notable drop in demand for building materials and plant. Nationally, we are seeing a large number of infrastructure projects that have previously been delayed beginning to come to market. Several Contractors have reported a large increase in tenders being released, with even more imminent. This is likely to provide a much-needed boost to the industry, which in turn is likely to affect our indices, albeit with a 12-18 month lag as the industry responds.

Our Maintenance index shows a 1.38% rise, which mirrors the continued decline in costs we are seeing in construction. As is the case with construction, this softening is caused largely by the cost of both materials and plant, which have continued to increase at slower rates (0.6% and 0.5% respectively). Although costs are reducing, we have found in some cases that specialist materials are taking abnormally long to arrive on site. This is largely due to the weakened manufacturing sector and a relaxed supply chain globally.

The New Zealand Infrastructure Commission (Te Waihanga) maintains the National Infrastructure Pipeline. This is a national dataset of infrastructure projects within New Zealand. This quarter's update included $107.9 billion of projects underway and in planning, with funding sourced or partly sourced. This represents an increase of $8.1 billion from the previous quarter. The total amount of projects, including those early in the planning cycle with funding not yet confirmed, equates to $204 billion, which is $60.4 billion up from the previous quarter. This further solidifies what the market is currently experiencing with an increase in projects coming to market.

The Tradies Lunchbox Index showed a 3.08% increase in Q4 2024, with a Pie and a V now costing $10.39. Unlike our infrastructure indices, the Tradies lunchbox has increased at a greater rate than inflation, albeit only just above the RBNZ target band. This points to a stabilised environment for both infrastructure and Tradie nutrition costs with no obvious signs of an immediate return to the likes of 2021/22.