“A number of factors have triggered a pickup in inflation,” says Basu. “One is a weakening U.S. dollar, resulting from the lingering pandemic, as well as Federal Reserve policy and pronouncements. The Federal Reserve’s injections of liquidity into financial systems are also consistent with stepped-up inflation expectations. The federal government will run an estimated $3.3 trillion budget deficit during the current fiscal year, which would also tend toward more inflationary pressures and eventual higher interest rates. Finally, the economic recovery to date has been robust, with the U.S. economy adding millions of jobs and recently driving unemployment well below 10%, meaningfully ahead of schedule based on consensus forecasts.
“Naturally, contractors will want to think through the likely trajectory of materials prices as they forge bids, proposals, and contracts,” says Basu. “History indicates that it is possible for materials prices to rise rapidly even in the context of relatively weak demand for nonresidential construction services.”
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