Inflation is a sustained increase in the general price level of resources, as defined in ISO 15686-5; it is the opposite of deflation. In an order of cost estimate or cost plan it is included as an allowance for increases in the prices of labour, plant, equipment and materials.
Under NRM 1 inflation is calculated separately from the estimate base date and split into two parts:
- Tender inflation: the increase from the estimate base date to the expected tender return date.
- Construction inflation: the increase from the tender date to the midpoint of the construction period, covering price rises during construction whether they are priced by the contractor in a firm price tender or recovered through fluctuations.
The QS normally uses published tender price and building cost forecasts to calculate the allowance. Showing inflation as a separate line makes it easy to update when the programme or market forecasts change, and avoids hiding it within the rates.
Related terms: Escalation, Estimate Base Date, Tender Price Index, Fluctuations.
