Construction sector could be hampered by wage inflation in coming months

Wage inflation in the Irish construction sector could be about to rise as more firms report difficulties in getting staff.

The latest purchasing managers’ index (PMI) from BNP Paribas Real Estate Ireland said wage pressure, in contrast to other sectors, has remained muted so far with 23,300 more construction workers being hired last year.

However, the latest monthly report indicated that the rate of job creation in construction here slowed in February and was the weakest since April last yearamid “reports that difficulties finding labour and cost considerations limited the pace of jobs growth”.

Inflation

“This could ultimately flow through to wage inflation which would exacerbate existing cost pressures and have knock-on implications for viability,” John McCartney, director and head of research at BNP Paribas Real Estate Ireland, said.

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The company’s latest barometer on the sector pointed to a continued pick-up in growth in February, with activity and new orders each rising sharply.

The headline seasonally adjusted BNP Paribas Real Estate Ireland construction total activity index increased to 58.4 in February from 56.1 in January.

This was the 10th successive monthly expansion in construction activity, “and

one that was the most marked since July last year”.

Respondents indicated that increased activity was driven by improving demand, while there were some reports of increased work due to the recent storms.

Difficulties

Construction firms, however, continued to face difficulties securing materials amid ongoing Covid-19 disruption, it said. Material shortages resulted in a further steep rise in input costs, it said.

“Building companies have reported increasing costs for nearly two years, and the input price index remained elevated in February,” Mr McCartney said.

Unfortunately things may get worse before they get better; In addition to the impact of Brexit, Covid and the Ukraine conflict on materials costs, labour costs may also be set to rise," he said.