Councils in Queensland will face average cost increases of 7.5 per cent, according to the latest local government cost index report.

Commissioned by the Local Government Association of Queensland (LGAQ), the 2011 council cost index report forecasted an increase in the cost of road and bridge construction, due to the recent natural disasters.

The report found that councils unaffected by the disasters would face significant increases in their costs because of state-wide demand for construction resources.

LGAQ chief executive Greg Hallam said the hike in construction costs should be considered when setting rates.

"They need to reconcile increased community expectations about the level of services they provide with the capacity to pay for those services,” Mr Hallam said in a statement.

"But councils would not be contributing to the financial sustainability of their communities it they tried to limit rate increases to just the CPI level.''

The report estimated that damage caused by the floods and cyclone would add an extra 15 per cent on the total amount of public capital works across the state.

"This increase in demand for construction work would be expected to have a significant impact on prices,'' the report stated.

"On top of this, private sector capital works will also increase.''

As a result, the local government cost index would most likely rise to around 7.5 per cent in 2011.

The cost index only referred to services covered by general rates. Water, sewerage and rubbish collection were subject to separate cost pressures, Mr Hallam added.

The report cautioned that the mix of construction activity varied from council to council and the cost index only provided an aggregated picture of cost movements.