[ Blog/News ]
Reserves & Inflation
Inflation Effects On Reserve Components are a Really Big Deal
The Consumer Price Index is at a 40-year high of ~ 7% as of this writing. As we all know, that’s a big deal. Our data and research show inflation of the goods and services relating to the typical association reserve components (roof, paint, siding, windows, decks..) to have been compounding ~25% annually since 2020 – that’s a Really Big Deal.
How Does This Inflation Correlate To The Increase In Reserve Contributions Necessary To Keep Up?
Our testing of twenty recently completed jobs indicates movement of 1% increase or reduction in inflation results in an average 22% change needed in the reserve contribution rate. See below:
Effects Of Inflation On Reserve Funding Plan:
Job Number Inflation Contribution Rate Contribution Rate
(-1 Inflation)
Contribution Rate
(+1 Inflation)
Total Difference +/- Spread
(Percentage)
Original 1 10165 - 9c 3.00% $10,000 $8,170 $12,350 $4,180 20.90% 2 10190 - 5a 3.00% $2,480 $2,040 $3,025 $985 10.86% 3 10368 - 12a 3.00% $9,250 $7,330 $11,600 $4,270 23.08% 4 10493 - 11a 3.00% $7,910 $6,200 $10,080 $3,880 24.53% 5 11025 - 10a 3.00% $6,220 $4,930 $7,855 $2,925 23.51% 6 11300 - 13c 3.00% $11,200 $8,900 $13, 700 $4,800 21.43% 7 11690 - 9a 3.00% $11,300 $9,030 $14,140 $5,110 22.61% 8 11806 - 10a 3.00% $7,600 $6,250 $9,255 $3,005 19.77% 9 12338 - 14a 3.00% $5,370 $4,260 $6,745 $2,485 23.14% 10 12917 - 8a 3.00% $6,590 $5,300 $8,400 $3,100 23.52% 11 12963 - 11a 3.00% $11,100 $9,060 $13,630 $4,570 20.59% 12 13515 - 3a 3.00% $9,150 $7,380 $11,320 $3,940 21.53% 13 14004 - 0b 3.00% $18,500 $14,920 $23,000 $8,080 21.84% 14 14287 -10a 3.00% $6,830 $5,480 $8,520 $3,040 22.25% 15 14289 - 9a 3.00% 17,100 $13,600 $21,370 $7,770 22.72% 16 14306 - 3d 3.00% $6,100 $4,960 $7,510 $2,550 20.90% 17 14441 - 10b 3.00% $7,640 $6,170 $9,450 $3,280 22.47% 18 14700 - 1a 3.00% $13,720 $11,060 $17,100 $6,040 22.01% 19 14896 - 10b 3.00% $12,910 $10,070 $16,540 $6,470 25.06% 20 15363 - 13a 3.00% $8,580 $6,990 $10,560 $3,570 20.80% Total 22.08%
| Job Number | Inflation | Contribution Rate | Contribution Rate | Contribution Rate | Total Difference | +/- Spread | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Original | |||||||||||||
| 1 | 10165 - 9c | 3.00% | $10,000 | $8,170 | $12,350 | $4,180 | 20.90% | ||||||
| 2 | 10190 - 5a | 3.00% | $2,480 | $2,040 | $3,025 | $985 | 10.86% | ||||||
| 3 | 10368 - 12a | 3.00% | $9,250 | $7,330 | $11,600 | $4,270 | 23.08% | ||||||
| 4 | 10493 - 11a | 3.00% | $7,910 | $6,200 | $10,080 | $3,880 | 24.53% | ||||||
| 5 | 11025 - 10a | 3.00% | $6,220 | $4,930 | $7,855 | $2,925 | 23.51% | ||||||
| 6 | 11300 - 13c | 3.00% | $11,200 | $8,900 | $13, 700 | $4,800 | 21.43% | ||||||
| 7 | 11690 - 9a | 3.00% | $11,300 | $9,030 | $14,140 | $5,110 | 22.61% | ||||||
| 8 | 11806 - 10a | 3.00% | $7,600 | $6,250 | $9,255 | $3,005 | 19.77% | ||||||
| 9 | 12338 - 14a | 3.00% | $5,370 | $4,260 | $6,745 | $2,485 | 23.14% | ||||||
| 10 | 12917 - 8a | 3.00% | $6,590 | $5,300 | $8,400 | $3,100 | 23.52% | ||||||
| 11 | 12963 - 11a | 3.00% | $11,100 | $9,060 | $13,630 | $4,570 | 20.59% | ||||||
| 12 | 13515 - 3a | 3.00% | $9,150 | $7,380 | $11,320 | $3,940 | 21.53% | ||||||
| 13 | 14004 - 0b | 3.00% | $18,500 | $14,920 | $23,000 | $8,080 | 21.84% | ||||||
| 14 | 14287 -10a | 3.00% | $6,830 | $5,480 | $8,520 | $3,040 | 22.25% | ||||||
| 15 | 14289 - 9a | 3.00% | 17,100 | $13,600 | $21,370 | $7,770 | 22.72% | ||||||
| 16 | 14306 - 3d | 3.00% | $6,100 | $4,960 | $7,510 | $2,550 | 20.90% | ||||||
| 17 | 14441 - 10b | 3.00% | $7,640 | $6,170 | $9,450 | $3,280 | 22.47% | ||||||
| 18 | 14700 - 1a | 3.00% | $13,720 | $11,060 | $17,100 | $6,040 | 22.01% | ||||||
| 19 | 14896 - 10b | 3.00% | $12,910 | $10,070 | $16,540 | $6,470 | 25.06% | ||||||
| 20 | 15363 - 13a | 3.00% | $8,580 | $6,990 | $10,560 | $3,570 | 20.80% | ||||||
| Total | 22.08% | ||||||||||||
What Are Your Options?
- Ignoring the effects of interest and inflation is NOT an option.
- Using the software included with your reserve study, test inflating your largest expenses projected the next few years in 25% increments. Note the effect on percent funded and necessary increase in contributions. Communicate your “what-if” results to the membership and craft a plan.
- If you don’t think you’ll have sufficient reserves or cash flow to complete some or all of those projects in a timely manner, it may be necessary to carefully prioritize and reschedule. Here is a webinar addressing the topic in detail: Tight Budgets, Tough Choices! Your priorities should start with any potential life-safety issues, and protection of the building envelopes.
By Association Reserves WA
Chapter Happenings Sponsor, April 2022
