Construction input cost inflation at ‘24-year high’

4 June 2021

Input cost inflation reached a survey record high during May, as the construction sector has encountered severe supply shortages and a surge in demand for materials, according to the latest PMI. 

Construction firms said stretched supply chains and steep rises in raw material prices have contributed to a rapid increase in average cost burdens, taking the overall rate of input price inflation to its highest in more than 24 years.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index registered at 64.2 in May, up from 61.6 in April. 

The overall sector experienced a rapid upturn in new business, with around 47% of respondents reporting higher volumes of new work. 

Construction firms attributed the surge in order books to strong demand for residential building work, evidenced by house building being listed as the best-performing category of construction activity in May, followed by commercial work. Growth was also attributed to high levels of confidence in the near-term economic outlook. 

However, as new work surged, this was met by a steep upturn in purchasing activity. Firms noted that input buying had been boosted by efforts to build inventories in response to supply shortages.

Suppliers' delivery times also lengthened sharply in May, while the downturn in vendor performance was the second-steepest since the survey began.

Duncan Brock, group director at CIPS, said: “Busy purchasing managers were under pressure to keep up and buying up at the fastest rate since April 1997, changing sourcing strategies to find depleting essential materials and stocking up just as supply chain problems continued to mount, along with prices. 

“With inflation for goods and raw materials at a 24-year high, companies will be concerned that much-needed profits will be eaten away as building projects take shape and could be held up by some of the longest delivery times on record.

“Skills shortages are also becoming a problem, with recruiters finding talented labour hard to find, as job creation was at robust levels and the threat of staffing cutbacks has become a distant memory.”

Tim Moore, economics director at IHS Markit, added: “There were widespread reports citing shortages of construction materials and wait times from suppliers lengthened considerably in comparison to those seen during April. Imbalanced supply and demand led to survey record increases in both purchasing prices and rates charged by subcontractors.

“Despite severe challenges with materials availability, construction firms remain highly upbeat about their nearterm growth prospects. Nearly two-thirds of the survey panel forecast an increase in output during the year ahead, while only one-in-13 forecast a decline.”

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