The cost of construction materials and labor spiked at the beginning of 2026, spearheaded by rising prices for energy and materials.

Construction input prices rose to a 12.6% annualized rate in the first two months of 2026, according to an analysis by Associated Builders and Contractors.

Overall input prices stood 3.1% higher than a year ago, with nonresidential construction seeing a 3.7% increase over the last year.

These costs "could serve as a real headwind to construction activity over the next several months," ABC Chief Economist Anirban Basu wrote in a statement.

For the analysis, ABC crunched construction costs pulled from producer price index data from the U.S. Bureau of Labor Statistics.

The increases were triggered by energy increases, including natural gas, which saw a monthly increase of 10.9%. This was followed by unprocessed energy materials, which rose 6%, and crude petroleum, which rose 2%.

These spiking costs were recorded before the start of the conflict in Iran. Average energy prices will surely rise even more sharply in the next monthly analysis of construction costs.

The price of Brent crude oil rose roughly 50% since the conflict began Feb. 28 to more than $112 a barrel as of late Friday afternoon.

Basu said escalating energy costs will have even larger impacts on the construction industry if the conflict in the Middle East doesn't soon resolve.

It "will put upward pressure on construction materials prices directly by raising diesel prices and, indirectly, by raising the cost of shipping other inputs," Basu said.

Escalating material and labor costs are another blow to the construction sector. The construction backlog has reached a four-year low as starts slow and tariffs make projects harder to pencil.