Inflation impact: how the military may need to adjust spending to cope with rising production costs

Rising production costs due to inflation will have a knock-on effect on the military’s purchasing power as it strives to honor outstanding contracts for aircraft, ships and other vehicles.

“There is an impact on military hardware at all levels,” Pete Phillips, a former Navy pilot, told FOX Business. “You’re looking at the same delays or cost increases that have impacted the civilian side of the house.”

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Inflation has continued to rise in recent months, approaching a 40-year high as the Russian invasion of Ukraine and strong consumer demand continued to push consumer prices up. The consumer price index, a broad measure of the price of everyday goods, rose 8.3% in April from a year ago.

Those price hikes affect all kinds of products, from technology to gas and everything in between, and a number of shortages in products like microchips and baby food have helped keep those prices high.

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And the military isn’t immune: The fighter jets and submarines deployed by US forces may be complex, but the parts they use are quite common, even if they go through a more rigorous testing process.

“A lot of the things you use in the military are by all means commercial ready-to-use items that we put on our military vehicles,” explains Phillips. “The tires they make for a Humvee are manufactured in the same factory where we build Goodyear tires for a Ford F-150 – the same with brakes and other ancillary parts.”

“Just because you make the military radio doesn’t mean you use special parts,” he added. “Yeah, they have to be made to build specs, but you’re using the same guts.”

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Inflation may not have immediate effects, as projects often take years to complete. Procurement of some naval vessels will take up to ten years to complete, meaning projects already underway will go according to plan.

Usually, contracts for those vehicles will include provisions to cover higher production costs, allowing the government to renegotiate or shift targets in some cases and prevent the contractors from suffering too much.

But the legal need to finalize those contracts will likely limit what the military can spend on future projects, Phillips said. If the military could offer a $500 million contract for five F-15EXs, inflation costs could reduce that number to three jets for the same bulk cost to cover the higher purchase cost.

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“You’ll either see an increase in the defense budget or a decrease in the number of things we buy,” said Phillips, explaining that the Navy can decommission some relatively young ships to make way for newer ships because of the cost of maintaining them. the fleet.

“Maybe you should retire if you want to keep 100, maybe you should retire 25 because the budget is the same, so you can’t keep 100,” he added. “You can only keep 75, but the same budget. Those are things you’re going to see.”

Megan Henney of FOX Business contributed to this report.

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