Forty-year inflation peaks, labor shortages, pandemic aftershocks, and record retirements — it’s no surprise that companies are feeling the effects. The construction industry hasn’t escaped these challenges either.
Today, rising inflation in commercial construction is one of the biggest pressures reshaping how projects are planned, priced, and completed across the U.S.
Construction companies are reporting 10%–30% increases in material costs from the time bids are accepted to when orders are placed. These unpredictable jumps make financial planning more complex than ever. Companies that fail to plan for inflation risk underbidding projects, losing profit, and straining customer relationships.
In this article, we’ll explore what inflation is, what causes it, how it affects the construction industry, and practical steps businesses can take to protect themselves from rising costs.
What is inflation?
The Federal Reserve defines inflation as “the increase in the prices of goods and services over time.”
Simply put, inflation occurs when the cost of everyday goods and services rises — reducing the purchasing power of money.
For many, inflation signals a struggling economy, but some degree of inflation is inevitable. Economists often monitor core inflation, which excludes volatile categories like food and gas, to better understand overall trends.
A common tool to measure this is the Consumer Price Index (CPI) — the average change over time in prices paid by urban consumers for a standard “basket” of goods and services.
For the latest updates on inflation rates and consumer pricing, visit the U.S. Bureau of Labor Statistics — a trusted federal source for inflation data.Historically, a desirable inflation rate does not exceed 2% per year. However, with inflation increasing by 8.5% over the past 12 months, the economy is far from stable — particularly in commercial construction, where material and labor costs are heavily affected.
Inflation and Intrest Rates
Rising inflation remains the number one concern of small business owners, according to a U.S. Chamber of Commerce survey.
As inflation grows, so does the likelihood that banks will raise borrowing costs for businesses.
For construction companies, this means higher interest rates on new loans — and even existing loans with variable rates. Pre-pandemic, small business loan rates hovered near zero. Today, many hover around 9% or higher, creating additional financial strain.
What Causes Inflation?
Inflation doesn’t have a single cause. In 2022 and beyond, rising inflation in commercial construction has been driven by a combination of:
- High demand and limited supply
- Extended production and shipping delays
- Labor shortages across industries
- Supply chain disruptions from global events
- Increased government spending during COVID-19
When the pandemic hit, factories in China and around the world shut down, disrupting global supply chains. Later, government stimulus checks boosted consumer spending, increasing demand for products that manufacturers couldn’t produce fast enough.
The result: soaring prices and an unbalanced market that continues to ripple through commercial construction.
Supply Chain Issues
The pandemic triggered a domino effect across manufacturing and shipping networks. Construction materials became scarce — if available at all. Inventory dwindled, delivery times stretched for months, and costs skyrocketed.To make matters worse, natural disasters like the Texas winter storm and Hurricane Ida (2021) disrupted the plastics industry, while wildfires and the Suez Canal blockage delayed lumber and cargo shipments.
Even when materials were produced, labor shortages at ports and factories slowed distribution further, driving up prices for commercial builders.
Effects of inflation on Companies:
Rising inflation directly impacts businesses in two key ways:
- Reduced Consumer Spending Power – As inflation rises, consumers and organizations have less purchasing power. Fewer goods and services are purchased, leading to lower revenues.
- Increased Operational Costs – Raw materials, labor, and logistics become more expensive. Many construction firms absorb part of these costs to maintain client relationships, which erodes profit margins.
For those in commercial construction, inflation compounds these challenges. The longer the gap between project bidding and material purchasing, the greater the financial risk.
Are all businesses affected by inflation the same way?
Not all businesses are affected by rising inflation costs the same way.
According to the Associated General Contractors of America (AGC),
“The construction industry is in the midst of exceptionally steep and fast-rising costs for materials, compounded by major supply-chain disruptions and labor shortages — a combination that threatens the financial health of many contractors.”
The U.S. Single-Family House Construction Cost Index has climbed between 12% and 17%, reflecting dramatic cost increases across the industry.As a result, many construction companies now delay submitting bids until closer to project start dates to avoid cost overruns. Others must revise contracts midway through projects to account for material and labor hikes — often leading to customer frustration.
How is the construction industry affected by increasing inflation?
“The construction industry is in the midst of a period of exceptionally steep and fast-rising costs for a variety of materials, compounded by major supply-chain disruptions and difficulty finding enough workers—a combination that threatens the financial health of many contractors. No single solution will resolve the situation.” As reported by the Associated General Contractor 2022 report.
U.S Single Family house construction cost index is up from 12% to 17% causing major impacts across the industry.
As inflation continues rising, construction companies are often left delaying project bids until closer to project start dates to prevent cost overruns due to inflation.
Due to the duration of time between construction project bids being accepted to the time project materials are being purchased, companies are forced to revise their bid offers due to the many price increases for materials, labor, and shipping.
In doing so, frustration among customers is on the rise.
To prevent disputes with customers, construction companies are often left delaying project bids until closer to project start dates to prevent underbidding projects and conflicts among clients.
How should companies prepare and manage rising inflation?
If it feels like your budget doesn’t stretch as far as it used to, you’re not alone. For small and mid-size businesses, rising inflation in commercial construction can disrupt financial stability and project planning.
To stay ahead, companies should focus on being proactive rather than reactive.
Here are a few key strategies:
- Analyze the market position and adjust pricing in line with competitors.
- Review product and service offerings to prioritize high-margin items.
- Diversify supply sources to minimize dependence on a single vendor or region.
- Identify materials with long lead times and develop stocking strategies for critical items.
By taking these steps, construction companies can reduce exposure to sudden price spikes and maintain healthier profit margins.
Summary
Post-pandemic inflation isn’t a short-term issue — it’s an ongoing economic reality.
With costs rising faster than ever, rising inflation in commercial construction continues to reshape how projects are planned and priced.By analyzing markets, strengthening supplier relationships, and refining financial strategies, companies can navigate uncertainty and build resilience against future economic shifts.
For additional insight into how material costs affect project timelines, visit our related post on Seasonal Garage Door Maintenance
