Contractors have watched prices for insulation, lumber and plywood jump, despite cost declines for asphalt, steel mill products and iron ore, pushing costs up 1.3 percent for the year.

Prices for construction materials moved higher in January, propelled by large jumps in items used in new housing and nonresidential building renovations, according to information from the Associated General Contractors of America.

So contractors are paying more for materials even as the pending federal spending sequestration threatens to cancel an estimated $4 billion worth of construction activity this year, according to the industry group.

"Contractors had to contend with huge leaps in prices for gypsum, wallboard and lumber, as well as significant increases in the cost of insulation and architectural coatings such as paint," Ken Simonson, chief economist for the association, said in a statement. "Based on pump prices for diesel fuel and price announcements by various manufacturers, it is clear that costs are rising significantly higher in February."