With the 2022 midterm elections looming, Biden is selling the infrastructure law as a success that overcame partisan divides and will improve the country with substantial investments in things like roads and bridges as well as clean drinking water, high-speed internet, public transit and airports.
"There’s so much more in this law. I’m not going to bore you with the rest of it, but it's significant," Biden said on Tuesday during his second trip to New Hampshire as president.
But the hottest inflation in four decades is threatening to limit how much can actually be fixed or built under the law, with elevated costs for materials causing contractors to charge more for construction projects, according to a new analyst note from economists at S&P Global.
The cost of construction projects for the government rose 14.1% in March compared with a year earlier, according to whole price information released by the Labor Department last week. The producer price index, which measures inflation at the supplier level before it reaches consumers, surged 11.2% in March from the year-ago period. On a monthly basis, prices grew by 1.4% – an uptick from February, when the gauge increased by 0.9%.
What's more, average hourly wages in the construction industry rose about 5.6% in March compared with last year, according to Labor Department data.
"As construction input inflation increases or remains elevated, the purchasing power of federal investment – as well as other funding sources – is eroded," the note, authored by S&P analysts Kurt Forsgren, Geoffrey Buswick and Joseph Pezzimenti, said.
The bill includes more than $500 billion in new spending that will be invested in "core" infrastructure projects such as roads, broadband internet and electric utilities over the next eight years. The White House has billed the measure as a "once-in-a-generation investment" and has projected that it will create 2 million new jobs.
That $1.2 trillion investment, however, could yield far less if sky-high inflation continues.
"The longer more elevated inflationary conditions persist, the more likely it is that public project sponsors will face the dilemma of reducing or delaying the promised overall program project scope or tapping other sources of program funding, including increased debt," the note said.
The White House has also directed federal agencies to ensure the new construction projects funded by the infrastructure law are built with U.S.-made materials, including iron and steel.
"This means all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States," the Office of Management and Budget said in 17-pages of guidance on Monday.
Biden is betting that increasing domestic production will ultimately reduce price pressures as the supply chains remained tangled, but U.S.-made steel is far more expensive than that produced in other countries. The price of iron and steel scrap is up 29.2% in March from the previous year, according to the Labor Department, while steel mill products are up 42.9%.
It's possible that state and local governments could step in and contribute to the infrastructure projects by tapping their general funds, which have been boosted over the past two years by generous COVID-19 stimulus funds.
"The longer more elevated inflationary conditions persist, the more likely it is that public project sponsors will face the dilemma of reducing or delaying the promised overall program project scope or tapping other sources of program funding, including increased debt," the analyst note said.