Analysts: The rise in construction material prices will stop in at least a few months, possibly even years

Prague - The current rise in construction material prices is not expected to stop for at least several months, possibly even years. The market has been confronted with limited supply and increased demand. The supply is limited due to closed mines and transportation routes. Demand has risen following long-term work restrictions due to measures against the spread of coronavirus. This follows from responses from analysts who answered a query from ČTK today.

According to representatives of construction companies contacted by ČTK, prices for steel and insulation materials have increased year-on-year by up to 100 percent, with some wooden products seeing even larger increases. They indicated that there is a shortage of construction materials, delivery times have lengthened, and future developments are hard to predict.

Data from the Metrostav group indicates that, for example, the price of construction timber increased by up to 160 percent from September 2020 to the end of May 2021, concrete steel reinforcement by nearly 100 percent, and EPS foam polystyrene by 83 percent. According to data from construction material sellers' websites, a kilogram of reinforcement costs between 50 to 70 crowns, depending on the width. A package with five sheets of polystyrene, 50 millimeters wide, can be acquired for about 90 crowns. An acoustic brick with a width of 190 millimeters costs around 70 crowns.

"Today's report from the Czech Statistical Office on a year-on-year increase in the price level by 3.4 percent caused two different surprises. Financial markets were surprised that inflation is so high. Builders were surprised that inflation is so low. The costs of construction make up only a relatively small part of the consumer basket. But the price developments in construction are thus all the more alarming. So far, it is a 'silent killer' that has not been reflected in the usually measured inflation, but eventually it will be, and it will be too late," said Petr Bartoň, an analyst at Natland, to ČTK.

According to him, prices for construction materials will continue to rise because limited supply and increased demand have come together rarely. "The limited supply is caused by closed mines and transportation routes. Almost everywhere in the world, foreign workers from surrounding poorer countries work in the mines. They are currently facing difficulties returning to their workplaces due to restrictions. Similarly, sailors are having problems getting onto cargo ships," Bartoň added.

On the demand side, according to him, minor construction work by people who remained at home due to restrictions plays a role. "It's like when yeast for home baking ran out everywhere during lockdowns, only in incomparably larger and more serious proportions," pointed out Bartoň. He identified large state investments in production in Europe or America as another reason for increased demand. "At some point, the price increase will stop, but only over several months, possibly years. This will mean the reactivation of transportation ships and greater investments in expanding existing mines, or perhaps reopening those that have been closed in the meantime," Bartoň added.

According to ČSOB analyst Petr Dufek, high prices for construction materials indirectly affect the valuation of real estate on the market. "The prices of the materials themselves are just beginning to be reflected in inflation. In overall inflation, which is based on the average household's average basket, this won't be very noticeable. But those purchasing goods such as particle board or drywall will significantly pay more," said Dufek.

He also stated that there is currently no reason to expect the situation to improve significantly in the coming months. "Perhaps next year, when market tensions ease, prices could correct. However, they are unlikely to be as cheap as they were last year," Dufek added.