Colorado Springs economist explains trend of higher construction costs fueled by inflation
COLORADO SPRINGS, Colo. (KRDO) -- In the past week, KRDO has reported on two construction projects that are having higher-than-expected costs because of inflation.
El Paso County is applying for a $10 million grant to cover costs of expanding the south end of Academy Boulevard, and a planned renovation of the historic City Auditorium in Colorado Springs is on hold — partly because of the cost estimate increasing by at least $20 million.
City Engineer Gayle Sturdivant said that In some instances, local governments and private contractors are able to negotiate a lock-down on construction costs to avoid unexpected increases; the newly-begun plan to widen the north end of busy Marksheffel Road, is an example.
"A lot of it depends on the scope of the project," she said.
Tatiana Bailey, executive director of Data-Driven Economic Strategies, explains whether such construction inflation is a short-term phenomenon, or a longer trend.
“I think it will continue for the next six months, at least,” she said. “I think that the rate of increase we saw during the pandemic is starting to slow. As economists call it, it's dis-inflation. It doesn't mean prices are coming down, generally. It just means that the rate of increase is slowing."
Bailey said that inflation is driven by several factors.
“The labor side is getting more expensive because people start to expect higher wages because of inflation,” she said. “If we do get inflation under control within the next year, we still have the problem of nor having enough working-age people. That’s going to keep the labor market tight for quite some time. You have to pay more to hire workers and keep them. There’s also a shortage of people who have the right skill sets.”
More disasters tied to climate change, she added, are another contributor to inflation.
“We haven’t seen de-inflation, prices coming back down in any material way, since the Great Depression,” she said. “I don’t see that happening, or a market crash, unless something else unexpectedly significant — like the COVID-19 pandemic — happens.”
The situation isn’t affecting just the construction industry, either, Bailey said.
“Families can’t get into a home because baseline prices are 40% higher,” she said. “And interest rates are 7%. Still, the U.S. is in better shape than Europe right now.”
Bailey agrees with the opinion expressed this week of City Council President Randy Helms, regarding the City Auditorium.
“It’s good to do a step back and look at what are the plans?” she said. “Is there any way to alter the plans, at least in the short run, or to do things on phases? Because I don't think it's something that should be abandoned."
The economist also offered her forecast through next spring.
“The holiday shopping season will be good but probably not great,” she explained. “I expect gas prices to approach $4 a gallon. The days of sub-$3 are over. With the big push toward more electric vehicles, the oil production industry knows it has only a limited amount of time to make a profit.”
