Deflation is a sustained decrease in the general price level of resources (as defined in ISO 15686-5); it is the opposite of inflation.
In construction, deflation can occur in tender prices or in the cost of particular resources when demand falls, for example during an economic downturn. For the QS, it affects the inflation allowances in estimates and cost plans, which may need to be reduced or even become negative. Where a contract includes a price adjustment provision based on published indices, a fall in the indices can reduce the amount due to the contractor. ISO 15686-5 is the standard for life cycle costing, where the treatment of inflation and deflation affects how future costs are expressed.
- Distinguish general deflation from a fall in the price of a single material.
- Check the indices and base dates used in any price adjustment provision.
Related terms: inflation, tender price index, fluctuations, life cycle costing.
