Leading global designing and engineering consultant, Arcadis, has forecast high inflation in the construction industry from next year due to rising energy costs. This will be the second wave of inflation after the raw materials boom and will affect the prices of energy-intensive materials like glass, cement, and concrete, bricks.
An increase in the prices of coal, electricity, and natural gas is the reason behind the upsurge in energy costs, as reported by Arcadis. The report predicts that the inflation pressures on buildings would peak by 4-6% in London and by 4-5% in regional areas. Infrastructure projects will see a hike of around 5-6%.
The rising energy costs started inflation at the end of Q2 and are expected to continue till next year. The inflation has already led to a hike in the prices of various projects, as revealed by the Department for Business, Energy and Industrial Strategy. The cost of structural steel and construction materials has increased by almost 75% and 25%, respectively.
The silver lining is that the latest data released by IHS Markit is based on a survey that showed a decline in the number of longer delivery issues by respondents. The industry shows signs of growth, with a reading of 55.5 in November.
Arcadis market intelligence lead Agnieszka Kryzaniak said that the construction industry is a highly fluctuating one and will definitely be affected by inflation in the near future. But the high output and increase in new orders show that the industry is also growing and recovering.
New orders indicate that the demand is still there, so there will be no reduction in prices until next year. Some ease in price hikes might happen by mid-2022, but otherwise, the rising energy costs are going to play a vital role in the construction industry.
Kryzaniak further added that certain sectors like private residential or industrial warehousing would benefit from the inflation while other sectors like affordable housing could experience a downturn in demand.
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