PREDICT INDICES 10-year review

The purpose of this annual review is to provide readers with a visual indication of trends over a sufficiently long period for significant economic changes to be observable. While this is generally useful as an overview, we must remind you that cost indices - from whatever source - should be used for updating costs over a period of no longer than five years.

Of course, if the estimator is sure (or has been categorically assured) that the relevant technology has changed little, and that materials and labour have not suffered severe differential escalation for the equipment in question, then updating over a longer time span is permissible. (For a comment on the difference between the terms `inflation' and 'escalation' see PE, May 1996, p16.)

An interesting comparison between the 13 countries (Austria is omitted from the review as we have only recently started reporting its data) can be made by considering the average annual increase in their indices during 1987-1994 inclusive, and similar figures for 1995-1996. This is shown in the Table.

It is clear from the graphs and the Table that, apart from Spain, the rate of increase in all of the indices has reduced over the last two years.

Three points of particular note can be made from these data:

* the figures for the UK reflect the regime of the last Chancellor with results of great help to industry;

* Japan continues to achieve remarkably low levels of escalation;

* the star performer is the USA with escalation close to zero over the past two years.

{{Country 8-year annual 2-year annual average average

Australia 3.34 1.35Belgium 3.08 1.60Canada 3.08 2.85Denmark 3.65 1.08France 3.15 1.80Italy 4.93 1.25Japan 1.88 0.55Netherlands 2.10 1.50Spain 5.70 9.20Sweden 5.06 4.85West Germany* 3.71 3.35USA 1.91 0.40UK 6.05 2.25