Bad news for Government: inflation triggers slowdown in construction

Any good news on housing figures – planning permissions, commencements or completions – is jumped on by a Government increasingly desperate to convince voters that it is getting to grips with a stubborn housing crisis.

But there is little cheer for Ministers in the latest AIB purchasing managers’ index for the construction sector when it comes to housing or even the vaunted National Development Plan (NDP).

Instead of expanding, overall activity actually slowed down in October for the first time in four months, precisely when a post-summer pickup might have been expected.

The picture in the residential sector is even worse – a third successive month of contraction and at a quicker pace than in September.

[ Housing completions up 10.6% in first nine months of 2026Opens in new window ]

Any figure above 50 signals expansion in these purchasing managers’ indices. In construction, the figures this month were 49.2 on the commercial sector, 45.6 in residential and 44.9 in civil engineering.

Civil engineering, which is the sector that would expect to benefit from investment in infrastructure under the NDP, saw the most precipitous fall of any sector last month.

The overall index fell from 50.4 in September to 48.0.

Businesses surveyed said work on new projects was slow to get started as other projects came to completion.

Price pressures are being blamed for the slowdown, especially higher oil and fuel prices, with inflation pressures highlighted by another sharp rise in input costs across the sector.

That is also reflected in the index of new orders which, worryingly, fell for the first time since June. It is seen as a leading indicator, pointing to the short-term direction of activity.

All of which is bad news for employment. Staffing levels in construction firms fell for the second month in a row and there was less demand for subcontractors.

“Amid this challenging backdrop, sentiment within the sector regarding the prospect for increased activity levels over the coming year softened again, falling to its lowest level since April,” said AIB senor economist John Fahey.

That’s definitely not what Government wants to hear.