Original Article

Paul Chapman

December 23, 2021

https://doi.org/10.25219/epoj.2021.00113

Transport infrastructure projects typically take a number of years to complete and there is a strong case  for adjusting ‘nominal costs’ incurred in different years to ‘real costs’ in base year prices by using an inflation  index. The literature on the funding and financing of transport infrastructure projects and investment in  public works addresses the choice of inflation index as a metaphorical footnote on the treatment of costs  incurred in different years. This article gives deeper consideration to this issue and identifies the substantial  effect the choice of inflation index has on ex-post cost evaluation. ‘Inflation shopping’ can occur when there  are alternative inflation indices to choose between, and where the choice of inflation index has a substantive  effect on the outcome of ex-post cost evaluation and the allocation of inflation risk between parties. Data  from Crossrail, a large rail scheme in London, is used to illustrate the effect of the choice of alternative  inflation indices on ex-post cost evaluation outcomes. 

Keywords:    Transport infrastructure, Ex-post cost evaluation, Inflation, Inflation index