Abstract:
Cost overruns in the construction industry remain a persistent issue despite numerous
technological advancements. Inflation may play huge role in the fluctuating prices of
construction materials throughout the project lifecycle. However, influence of inflation on
construction material price is still understudied. Therefore, it is critical to examine the
impact of macroeconomic factors (inflation) on construction material prices. Through a
comprehensive literature review, inflation rate and exchange rate are found to be the most
significant macroeconomic factors affecting the construction industry. Utilizing causal
theory framework, the study aims to establish causal relationships between variables. Data
acquisition is carried out through various verified online portals, websites and
governmental bodies. Series of statistical analysis, including spearman correlation and
regression analysis are used to determine and evaluate the relationship between the
variables. The results of Spearman Test indicate strong positive correlation between
inflation rate and construction material prices. A similar trend is observed for currency
exchange rate. The results of Linear Regression Analysis validate these findings,
establishing a robust linear positive relationship between independent and dependent
variables and hence the null hypothesis is accepted. Based upon the findings, the study
recommends adoption of stronger monetary policy coupled with exchange rate stabilization
regime and a key focus on local production of building materials at national scale. At
project’s level, the existing bill of quantities shall be revised and the new construction
contracts shall be based upon economic price adjustment policy. This study acts as a
benchmark and will help the relevant stakeholders in better understanding the magnitude
x
of macroeconomic factors, carry out risk mitigation and take the required decisive steps to
better navigate through the current adverse macroeconomic conditions.
