It has been over two years since the first signs of inflation, ignited by the COVID-19 pandemic, began appearing across the global industrial landscape. From the summer of 2020 through late 2021, prices on everything from raw materials to labour, rose steadily across the board.
Since then, conditions have begun to moderate. Most nations are lifting pandemic-related restrictions, and the massive labour shortages that affected companies in 2020 and 2021 are starting to ease. The one major exception, of course, is China where full-lockdown conditions akin to 2020 have returned, following recent COVID variant outbreaks.
Raw material prices continue to rise
What hasn’t reversed is inflation, particularly in raw material prices. For many commodities, the world is dealing with steep and continuous increases that have, in some cases, doubled or even tripled the prices. While the increases were initially fueled by COVID-related supply chain disruptions and the rapid rebound in economic activity in 2021, they were driven even higher by the Russian invasion of Ukraine on February 24th.
UK energy price pressures were already increasing following a worldwide squeeze on supplies before the Russian invasion of Ukraine added to the issue. There is also concern for the short to medium-term impact the Ukraine conflict could have on an already strained UK supply chain and existing material shortages. While only 1.2 per cent of all imported construction materials in the UK come from the warring countries, the UK still has some reliance on a number of them.
According to the Department for Business, Energy and Industrial Strategy Russia and Ukraine supplied the UK with 13.5 per cent of all concrete reinforcement bars needed, 9.3 per cent of asphalt products, 6.5 per cent of laminated wood, six percent of all flat glass and 5.1 percent of all sawn wood below 6mm in thickness.
Shipping cost increases also add to the problem
Perhaps no single commodity demonstrates the global economy’s inflation rises more than overseas shipping container rates. These rates jumped an astounding 822% higher than they were on the eve of the pandemic. So, while labour shortages are showing signs of easing in some sectors, raw materials prices aren’t anywhere close to normalising and neither are shipping costs. Obviously, the implications of such unrelenting inflation are enormous for businesses trying to get on an even keel.
The construction industry faces many challenges
The construction industry is feeling the effects of increased pricing — from the skyrocketing prices of steel, lumber, and fuel to the significantly increased cost of skilled labour. The Building Cost Information Service, which is part of the Royal Institution of Chartered Surveyors, estimates that the combined costs to build accelerated by 10.4 per cent year-on-year in the last quarter of 2021. However, this overall figure masks some huge increases in the price of materials, including sawn wood, which has risen by 88.5 per cent year-on-year.
Many manufacturers and builders could pass on increased costs onto customers as margins are squeezed, leading to more expensive houses and costlier renovations and extensions. The net effect of recent market pressures is rising prices, which could also lead to the postponement and cancellation of projects based on affordability issues.
Additional tariffs will continue to affect businesses and a variety of industries across the country as material prices continue to rise. Not only are project delays and budget overruns on everyone’s minds, but thousands of UK jobs are on the line as a result of increased material prices.