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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 NumberInflationContribution Rate

Contribution Rate
(-1 Inflation)

Contribution Rate
(+1 Inflation)

Total Difference

+/- Spread
(Percentage)

Original
110165 - 9c3.00%$10,000$8,170$12,350$4,18020.90%
210190 - 5a3.00%$2,480$2,040$3,025$98510.86%
310368 - 12a3.00%$9,250$7,330$11,600$4,27023.08%
410493 - 11a3.00%$7,910$6,200$10,080$3,88024.53%
511025 - 10a3.00%$6,220$4,930$7,855$2,92523.51%
611300 - 13c3.00%$11,200$8,900$13, 700$4,80021.43%
711690 - 9a3.00%$11,300$9,030$14,140$5,11022.61%
811806 - 10a3.00%$7,600$6,250$9,255$3,00519.77%
912338 - 14a3.00%$5,370$4,260$6,745$2,48523.14%
1012917 - 8a3.00%$6,590$5,300$8,400$3,10023.52%
1112963 - 11a3.00%$11,100$9,060$13,630$4,57020.59%
1213515 - 3a3.00%$9,150$7,380$11,320$3,94021.53%
1314004 - 0b3.00%$18,500$14,920$23,000$8,08021.84%
1414287 -10a3.00%$6,830$5,480$8,520$3,04022.25%
1514289 - 9a3.00%17,100$13,600$21,370$7,77022.72%
1614306 - 3d3.00%$6,100$4,960$7,510$2,55020.90%
1714441 - 10b3.00%$7,640$6,170$9,450$3,28022.47%
1814700 - 1a3.00%$13,720$11,060$17,100$6,04022.01%
1914896 - 10b3.00%$12,910$10,070$16,540$6,47025.06%
2015363 - 13a3.00%$8,580$6,990$10,560$3,57020.80%
Total22.08%

What Are Your Options?
  1. Ignoring the effects of interest and inflation is NOT an option.
  2. 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.
  3. 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. End Of Article
By Association Reserves WA

By Association Reserves WA

Chapter Happenings Sponsor, April 2022

Written By Jim Talaga, R.S.

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