Impact of Inflation on the Construction Industry


Inflation in the Construction sector has been a hot topic lately. In October of 2021, the Consumer Price Index hit a 30-year record of 6.2% annual inflation and the Producer Price Index clocked in at 8.6%. Inflation has been climbing at an increased rate since the beginning of the year but a much more volatile reality lies beneath the clean and simple charts published by the Bureau of Labor Statistics. Construction has traditionally followed the PPI closer than the CPI, as manufactured goods have a larger influence on costs than food or housing.

Suppliers of construction inputs have historically published moderate and predictable annual increases.  In 2021 these predictable increases have been replaced in some categories with multiple and sporadic increases totaling up to 30% that have not necessarily been restricted to the traditional annual schedule. This unpredictable inflationary environment presents unique challenges for all parties in a construction project. The significant development time required for multifamily construction projects creates an unavoidable exposure to inflation-based changes. 

To best serve our developer clients, Ironmark consistently provides pricing that is realistic for the time of future purchase, resists price increases at every step, and moves quickly to limit each project’s exposure to inflating costs. Keeping pricing accurate is only possible by closely tracking the most current pricing data as well as taking a collaborative approach with suppliers and subcontractors.  The days of leaning on a thorough cost database compiled over a period of years are over, at least for now.  Now more than ever, current hard bids on projects in the final stages of development inform the more schematic budgets being assembled for other projects, and this data is continually augmented with consistent supplier input.

Fighting for minimal price increases is also integral to Ironmark’s role in a successful project. Competitive bidding and careful negotiation are the primary means of keeping price increases in check. Our large network of subcontractors allows us to be confident that we are providing competitive pricing for every piece of a project and our rich historical project cost data allows us to hold suppliers accountable to explain any potential increases.

Moving with speed is often the simplest and most potent weapon of all when it comes to mitigating the effects of inflation on our projects. Even in this volatile materials market, prices can be locked in with a signed contract. Our project teams are committed to their approach of signing up subcontractors and suppliers quickly to hold the best possible pricing that will keep our projects on track to be successful.

Whether the current environment is here for the long-term or a different set of challenges lies ahead; smart, nimble and proactive companies will continue to outpace the rest. At Ironmark, we look forward to meeting the challenges ahead and continually partner with the best subcontractors and suppliers to build quality projects for discerning clients.