Global uncertainty, driven by conflict in the Middle East, made a sharp rise in fuel prices in Australia, with diesel prices nearly doubling between late February and late March 2026. This has created concern for businesses, as higher fuel costs flow directly into operating expenses, particularly across production, logistics, and transportation.
Figure 1: Fuel prices at the wholesale level
Source: Australian Institute of Petroleum (AIP), FWPA analysis
In the short term, most businesses are unlikely to pass these higher costs fully on to consumers, as it could weaken demand. Instead, firms tend to absorb part of the impact through margin compression while closely monitoring market conditions. If a spike in fuel prices persists over the next 6 to 12 months, a more gradual adjustment is likely, with partial cost pass-through occurring alongside operational efficiencies. The Government has responded swiftly by supporting the supply side, focusing on maintaining access and continuity of fuel supply.
Impact on residential construction
Like many sectors, residential construction is exposed to rising energy costs. Prolonged cost pressures are expected to drive adjustments across the sector, particularly if current conditions persist. However, recent data from the timber industry presents a contrasting picture. The latest quarterly price data for Q1 2026 indicates that prices for structural timber – both treated and untreated – and widely used in housing construction, declined compared to Q4 2025 (see Figure 2).
Figure 2: Trend of structural timber prices
Source: FWPA Data Portal
Key insights from the latest data suggest that no price adjustments to date. The weighted average reflects the period of January to March 2026, when timber demand is typically influenced by seasonal factors and aligned with construction activity cycles. A clearer assessment will appear in Q2 2026 (April to June 2026), when the full effects of higher fuel costs are more likely to be reflected across the supply chain, including downstream impacts in the residential construction market.
Therefore, claims that construction costs have already increased significantly due to timber prices are not supported by current evidence. Price data indicate that timber prices have not been a primary driver of cost increases, and such statements do not accurately reflect actual market conditions.
