Nature and Scope of this Book
Inflation is not a new phenomenon, but the 1970s have seen a marked and sustained acceleration of inflation throughout the countries of the industrialised West. Recently, Dale  has reported an OECD forecast suggesting inflation rates of at least 7–8% p.a. for these countries over the period 1975–80. The forecast rates vary from country to country, that for the U.K. being 10–12% p.a. Over the longer term, an extremely sophisticated simulation for the U.S. economy by Ibbotson and Sinquefield  gave a mean inflation rate of just over 6% p.a. for the period 1976–2000; a conclusion which they qualified by asserting that there was a 5% probability that inflation would exceed 11.3% p.a. over that period and a 5% probability that it would be less than 2% p.a. Inflation estimates are clearly subject to a high degree of uncertainty — and a particular ‘inflation rate’ for a country represents no more than a weighted average of a large number of individual price movements. Within an inflationary economy, the inflation rates appropriate to particular commodities vary widely; some prices may double in a year while others remain almost constant. It would seem plain that the complex interaction of large absolute and relative price changes must have enormous implications for management decision-making.
KeywordsCash Flow Inflation Rate European Economic Community Capital Budget Relative Price Change
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