CCI Manitoba Chapter News
How is inflation impacting your Condo Corporation?
How is inflation impacting your Condo Corporation (CC)?
While we are well aware of the reported inflation rate in the media based on the consumer price index (CPI), most of us are unaware of the inflation rate for construction material & labour. The recent past had the CPI averaging about 2%, but then the pandemic hit as indicated in the graph below (source https://www.bankofcanada.ca/rates/price-indexes/cpi/). Initially the pandemic resulted in reduced inflation because of shocks to the economy but thereafter, inflation took off to levels around 8% or so.
The CPI changes probably correlates to change in your CC’s operating expenses. But how about your capital & renovation projects that are funded from your reserve fund? Statistics Canada reports on the building construction price index (source https://www150.statcan.gc.ca/n1/daily-quotidien/220505/t001b-eng.htm), which reports for Winnipeg, an increase of 17% in the past year and 44% since 2017 as shown in the table below.
What are the implications for your reserve fund study (RFS)? If you RFS is more than a few years old, your projected expenditures could be understated by 40-50%. If you need to initiate a project next year, what will be the quoted cost from the contractor as compared to the projected cost in your RFS? Two recent articles published from the CCI Grand River Chapter are informative and provide useful recommendations for CC Boards.
- The Changes of Construction Costs In Your Condominium
https://cci-grc.ca/the-changes-of-construction-costs-in-your-condominium/ - The Effects of Inflation on Your Reserve Funds
https://cci-grc.ca/the-effects-of-inflation-on-your-reserve-funds/
If your reserve fund is close to the ideal balance, the high inflation rates are something to start worrying about. However, if your reserve fund is significantly underfunded, you should be worrying a lot, and implementing some corrective actions to ensure you have enough funds for when you need them.
Alan Forbes
Chair, Communications Committee
CCI Manitoba Chapter
