The perfect storm: Inflation and the construction sector
JLL’s Ben Jackson assesses the critical impact of rising costs
To what extent are the rising prices of commodities and essential building materials impacting the construction sector? Ben Jackson, head of Project & Development Services MEA for leading real estate market-maker JLL, has just published his new insights, tracking these all-important inflation rates. He asks very pertinent questions about their consequences for real estate, project construction and development in the MENA region.
We see, firstly, that a cluster of factors are currently coming together, with an all-too-apparent ‘perfect storm’ pushing up the rate of inflation to its fastest for more than a decade. With the Economist magazine recently citing inflation as one of the three major threats to the global economy in 2022, smart contractors need to be aware of the impact and adjust their financial, contractual and delivery mechanisms accordingly.
Key trends and indicators include –
- Current global events are leading to a ‘compound’ jump in energy and commodity prices (which were already rising steeply)
- Soaring energy prices: in March, the price of WTI oil crossed $100 per barrel for the first time since 2014
- Supplies chain disruptions and constraints in the labour market have never been so important, as economies bounce back from the Pandemic and rapidly step up demand
- Oxford Economics has recently raised its forecast for global inflation to 5.2% for 2022, a notable uplift from its previous projection (4.3%).
These factors are exacerbated as the Middle East region continues to see greater rates of urbanisation resulting in unprecedented levels of demand for affordable housing, social, transportation and utility infrastructure. All of which is put in stark relief by the World Economic Forum (WEF), which estimates this ‘mega trend’ will increase populations of cities around the world by approximately 200,000 people every day.
“We are currently experiencing something of a ‘perfect storm’ as a combination of reasons push up the rate of inflation to its fastest in more than a decade. Broadly, rising global demand as economies bounce back following the COVID-19 pandemic, supply chain disruptions, constraints in the labour market and soaring energy prices (in March, the price of WTI oil crossed $100 per barrel for the first time since 2014) are resulting in shortages and pushing up prices,” says Ben Jackson. “Moreover, the western economic sanctions on Russia’s economy are exerting supply-side pressures that are likely to result in further price increases in the coming months.”
To view Ben Jackson’s comments in full, please download here – https://www.jll-mena.com/en/views/impact-of-price-inflation-on-middle-easts-construction-sector
