The term “inflation” is now synonymous with 2022. Due to the COVID-19 pandemic, rising energy prices and supply chain issues, among other woes, inflation has steadily increased over the past two years. This has forced the U.S. Federal Reserve to increase interest rates aggressively to slow the economy down. As of October 2022, the U.S. inflation rate sat at 7.7%, which is down from June’s high of 9.1%, but much higher than October’s 2020 rate of 1.2%.
For the construction, fenestration, glass and glazing industries, the past few years have been awash with supply shortages, increased prices of raw materials, machinery and even consultation fees. Companies had to raise prices when possible to offset reduced profit margins and delay the completion of many projects.
Kathy Krafka Harkema, the Fenestration and Glazing Industry Alliance’s technical operations director, said during the organization’s annual Fall meeting that “more economic pain, lower employment and additional layups are to be expected” as the Fed increases rates to combat inflation.
According to The Constructor, an online construction encyclopedia that provides informational resources to civil engineers, rising inflation has significantly affected trade industries over the past few years. Impacts include increased prices of construction materials, which influences both existing projects and bids, reduced profit margins, cash flow management problems, declines in sales volume, and longer production timelines, among other issues.
Delays in the delivery of construction materials exasperate the pain. This, too, leads to cost increases, which causes the initial and final costs to differ. Trade industries rely on a steady supply chain and additional inputs, such as equipment, fuel and technology. Higher gas prices mean higher transportation costs, which lead to increased prices for materials and rented machinery.
Key Media & Research’s Fenestration Material Price Index reports that fenestration material prices have increased by around 22% over the past decade. During that span, there were two significant increases where prices increased by nearly 13%. That was from the fourth quarter of 2010 to the fourth quarter of 2014.
These price increases are significant because material costs comprise a sizeable portion of a project’s budget. In construction, for instance, the cost of materials is about 35% to 60% of the overall construction cost, reports The Constructor. Increased costs reduce the profitability of a project, lengthen production timelines and lead to a decline in sales volume.
There is hope on the horizon, however. The inflation rate has fallen over the past four months, from 9.1% in June to 7.2% in November. If the month-to-month change in the inflation Index remains zero over the next seven months, Forbes says that the Fed could bring inflation down to its goal of 2% by May.