Folks may as well put on their leisure suits and head down to the local disco, because inflation is making it seem like the late ‘70s again. The Consumer Price Index rose to 6.8% in November, the fastest rise since 1982. Experts list a number of reasons for the increase, including labor shortages, supply bottlenecks, bad weather, and a flood of government money. Whatever the cause, HVAC contractors and their customers are paying more for most items these days.
The Associated General Contractors of America reports that prices for many construction materials soared in November. The Producer Price Index for inputs to new nonresidential construction is now 22.1% higher than it was in November 2020. The index for new nonresidential construction — a measure of what contractors say they would charge to erect five types of nonresidential buildings — is 12.4% higher than a year earlier.
“Prices for nearly every type of construction material are rising at runaway rates,” said Ken Simonson, the association’s chief economist. “These costs are compounding the difficulties contractors are experiencing from long lead times for production, gridlocked supply chains, and record numbers of job openings.”
Other costs are also higher. Trucking costs were up 16.3% year-over-year. Gas and diesel prices moderated in the past month, but remain more than a dollar per gallon higher than a year ago.
Wholesale Prices Pass On to Consumers
Lennox International Inc. CEO Todd Bluedorn detailed the inflationary pressures facing HVAC manufacturers during a recent investor presentation. Bluedorn said Lennox faced a $110 million headwind from higher prices from component suppliers and a $60 million headwind from higher material costs, such as copper and steel. The company is also paying its salaried workers 4% more this year, along with higher wages for its hourly employees.
Some of these price increases were passed on to HVAC contractors. Lennox announced four increases this year. Other manufacturers also raised prices, many more than once.
All retail businesses are facing higher wholesale costs, and many are passing those costs on to consumers. More than half of small business owners surveyed by the National Federation of Independent Businesses said they increase selling prices in October. That was the highest reading since October 1979.
The first Home Care Price Index from Thumbtack shows the home improvement sector passing along those price increases. Over the past 12 months, the average cost to care for a single family home has risen 9.3%, driven in part due to labor and material shortages, according to the survey. The annual cost now stands at $4,886.
The Index takes in all types of home projects, including HVAC maintenance. Smaller projects saw the largest increases. For example, duct and vent cleaning costs increased by 19.5%.
Demand Remains High Despite Costs
The higher costs have yet to hamper demand. Thumbtack found that 30% of homeowners surveyed said they plan to spend more than $10,000 on home projects in the next 12 months. That reflects comments from contractors and others that people understand the cost of everything is increasing and accept that.
HVAC contractors have responded to higher prices in different ways. Some have tried to stock extra inventory, and in some cases this worked out. The prices they paid wound up being less than they would have just a few months later. But Bluedorn advises against that.
“That’s a dangerous game for a contractor to do, and most of them don’t do it,” he said.
Others just accept the higher prices. Joseph Wood, owner of Boston Standard Heating and Plumbing, said he tries to put his prices where they need to be. But he realizes the inflationary environment is out of his control. He compares it to when he started his firm in 2008. There was nothing he could do about the collapsing housing market other than control his own attitude.
“I wasn’t going to participate in the negativity,” Wood said.
Jim Corrion, owner of C&C Heating and Air Conditioning in Roseville, Michigan, took over his family business in 1977, the last time inflation was a major economic issue. It was difficult, he said, but they got through it. He expects to do the same this time.