Inflation is an essential part of calculating accurate capital budgets.
A cost engineer will typically calculate the cost of a building project based on prices available at the time the estimate is prepared. Through the cost planning process, the project is then placed in the assumed future time frame of project implementation. Based on forecasts of future trends in building costs, the estimate is multiplied by an appropriate inflation factor to allow for the time shift. Building cost inflation does not necessarily follow more general consumer price inflation nor is it always the same for different trades within the building industry. Building inflation forecasts are typically derived from averaging projections from different construction indices for all building trades and are also influenced by location.