The Australian Financial Review recently reported that “total construction sector inflation will hit 9.5 per cent over the year to June 2022, and 6 per cent over the year to December 2022”.
This increased financial pressure in the industry will heavily impact the likelihood of increased insolvency activity.
With the latest ABS statistics confirming that the CPI increased by 2.1% in the last quarter, and that inflation reached 5.1% over the 12 months to March 2022 quarter (the highest since 2001) - those in the building and construction industries have been particularly hard hit.
Higher inflation impacts:
- Supply chains: a shortage of materials has seen an increase of 3.8% in construction costs;
- Labour markets; and
- RBA interest rate rise: higher interest rates may lead to a dampening in economic activity.
These additional costs have flow on effects to construction activity, some of which may be far reaching.