The Impact of Labor and Material Inflation

Homes being built

While many are optimistic about growth and recovery in the construction industry, labor and material pressures amplified by the pandemic continue to weigh heavily on the sector overall. The construction labor market remains tight. Contractors continue to have a hard time finding the labor they need. Industry analysts expect that job openings will only increase as demand in both the residential and non-residential sectors expands. As unemployment hits record lows, many contractors will have to increase wages to find workers, putting additional pressure on already thin margins.

In addition to employment pressures, contractors continue to confront rising material costs. The most recent government data on prices for construction materials shows an overall jump of 20% from January 2021 to January 2022 according to recent analysis by the Associated General Contractors of America. While some raw material pricing dropped in December, year-over-year increases in many material categories continue to be dramatic. While discussion of lumber prices dominated early 2021, analysts now most frequently call out double or triple digit increases in things like steel, copper, plastic, and gypsum products. In addition to construction materials, contractors are also struggling with the rising cost of fuel to run trucks and equipment.

As the pandemic seemingly wanes, concerns about inflation now dominate the headlines. Many of the pricing problems last year were driven by supply chain issues. Most analysts anticipate that supply chain disruptions will abate by the second half of the year and decrease inflationary pressures. While some contractors are already seeing shortened delivery times, there is no doubt time that delays will continue to impact projects. Global events are always unpredictable. Inflation has become an even bigger issue following Russia’s invasion of Ukraine, particularly commodity inflation around gas and certain types of metals.

All of these factors impact states, regions and individual insureds differently. We appreciate the role you play in ensuring appropriate coverage for your clients and we’re happy to discuss any concerns you may have. Please reach out to your dedicated GAIG Property & Inland Marine underwriter for assistance!

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