Experts Weigh in on Infrastructure Bill & Inflation

March 3, 2022

Elevated costs for materials and labor are resulting in contractors charging more for construction projects, according to government data

Runaway inflation may impact the $1.2 trillion Infrastructure Investment & Jobs Act

The infrastructure law provides only $550 billion in new spending, reported The New York Post. Of the $550 billion in new spending, $55 billion is allocated to drinking water, wastewater, and storm water infrastructure funding.

For instance, there is a current 7.5% inflation rate in the roads and bridges industry, which is the highest in 40 years. According to The Wall Street Journal reported, construction inflation overall is up 13% from 2021. 

In President Biden's State of the Union address, he pointed out the growing cost of living and his plan to tackle inflation, citing plans to cut energy costs and more, reported CNN. As of January, inflation for used and new vehicles made up nearly a third of overall price increases, added Biden

"But with all the bright spots in our economy, record job growth and higher wages, too many families are struggling to keep up with the bills," said Biden in the address, reported CNN. "Inflation is robbing them of the gains they thought otherwise would be able to feel. I get it. That’s why my top priority is getting prices under control."

According to The New York Post, the Federal Reserve must keep down inflation with higher interest rates, otherwise four years of 7.5% inflation shaves 30% off the value of the infrastructure bill. Even further, four years at 13% inflation will shave more than half off of the infrastructure bill. 

Elevated costs for materials and labor are resulting in contractors charging more for construction projects, according to government data, reported The Wall Street Journal. Economists and industry officials add that this could reduce the number of infrastructure projects the new federal money can finance, shortening project timelines and pushing up prices for materials and labor. Others leaders expect the multiyear payout of the funds to minimize the effect they would have on costs, reported The Wall Street Journal.

Labor Department data shows that average hourly wages in the construction industry rose roughly 5% in January and the industry is still short about 100,000 workers compared with February 2020, reported The Wall Street Journal. 

“As the cost of materials for these projects goes up, there are going to be fewer projects that you’re able to do,” said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials, reported The Wall Street Journal. “All of those factors are going to have an impact on just how far this influx of new federal funding is going to go in addressing our infrastructure problems.”

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Cristina Tuser