You may have yet to really think about the impact that lumber prices have on you, your investments, or your bank account. But the truth is, they’re all intertwined.

In recent months, you may have heard a lot of headlines about the soaring costs of lumber. Lumber prices hit all-time highs, causing home prices to soar.

As lumber prices have seemingly stopped their meteoric rides, other materials, such as steel, have begun to get more expensive. In fact, construction materials as a whole have also hit all-time highs.

Check out this article on Steel Mill products, for example. What is causing this rise in prices? The answer is simple, and it’s one that you’ve probably heard before.

What is Inflation?

Investopedia defines inflation as the following: “a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.”

I like to think of it in simpler terms – If you inflate the money supply, prices will go up, and it will take more dollars to buy the same goods.

How Inflation Affects Construction Costs

When we’re talking about the price of lumber and other material goods increasing in price, it is easy to see how that will in turn, lead to higher construction costs. Higher construction costs lead to higher prices for new buildings which increases the price for older buildings. Higher building prices mean higher rent prices—the higher the rent, the less affordable for those without assets that keep pace with inflation. Essentially, it’s sorta like “trickle-down inflation.” 

Lenin said, “There are decades when nothing happens, and there are weeks when decades happen.” I don’t know about you, but to me (and not just with inflation), it seems like we’re living in the latter.

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