“There are some economists who believe that inflation has peaked,” said Anirban Basu, chief economist, ABC. “Even if that were true, stakeholders should not expect dramatic declines in inflation in the near term given an array of factors placing upward pressure on prices: the Russia-Ukraine war, COVID-19, a shrunken labor force, elevated transportation costs, and abundant demand for goods. Today’s PPI release indicates that producers continue to ask for and receive elevated prices for their limited production. These high input prices will continue to circulate through the economy as production continues, whether in the form of manufactured goods, buildings or infrastructure.

“According to ABC’s Construction Confidence Index, many contractors report that demand for their services remains sufficiently robust for them to pass along the bulk of their cost increases to project owners,” continued Basu. “But, at some point, the economy could weaken to the point that purchasers of construction services become less willing to pay elevated prices.

“The Federal Reserve is now in the middle of what will likely prove a lengthy monetary tightening process, and higher borrowing costs are rendering project starts less likely, all things being equal. That said, certain segments are likely to power through this dynamic, should it happen. That includes public construction, given the recent passage and ongoing implementation of a large-scale American infrastructure package. It should be noted that recent inflation has reduced the return taxpayers will get per dollar spent on infrastructure.”

For more information, visit http://abc.org/economics.