Americans are being hoodwinked by government inflation statistics that are designed to keep the official rate low and similarly put a blanket on indexing of government payments, such as increases in Social Security benefits. The reality is that inflation is alive and well in America and it is slowly but surely working its way through the economy.

Construction, in particular, has been weathering an inflationary storm since steel prices doubled in the spring of 2004. Since then, virtually every construction material has taken a turn at unexpected, rapid price spikes, right up to the doubling of copper prices during the second quarter of this year.

ENR's Third Quarterly Cost Report shows a break in this recent pattern, with a slowdown in housing undercutting some prices and commodity price speculation easing. Even petroleum prices temporarily behaved themselves. But suppliers and contractors burned by earlier escalation are putting more protection in their prices.

It is not clear if the third quarter's trend is a turning point in inflation or simply the eye of the storm. The underlying forces of strong global demand, a weak dollar and high energy prices should warn against complacency. One thing is clear: The construction industry and consumers at large are struggling with a higher rate of inflation than the 3.8% annual increase over 2005 that the Consumer Price Index showed in August, before seasonal adjustment.

One large public owner reported to ENR that it studied unit price trends on its building projects for the last two years and found that of the 5,215 line items examined, 85% experienced average annual cost increases greater than 10%.

A survey of 116 public owners conducted by Phoenix-based PinnacleOne notes that 36% claims they have delayed or canceled projects due to inflation in construction materials. An ad hoc membership survey by the Associated General Contractors asking if they have encountered any projects that were canceled, delayed or redesigned because of higher material costs unleashed a surprisingly large number of examples.

And the most startling changes may yet be coming. Construction craft and other project labor has been a sleeping giant for much of the past decade. But that giant is stirring, and for good reason. Because the real cost of living in the U.S. is not reflected by the CPI, employers that rely on it as a measure are in for trouble. When it comes time for workers to assess compensation in relation to the demand for their skills and how much it really costs to live, decisions will reflect reality, not a statistic. Some employers already are in shock and many more will be in the future.