Page 276 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

As a result of inflation, a dollar set aside (not invested) will purchase fewer goods and services in the
future than the same dollar would today. In Chapters 7 and 8, it was seen that inflation of equipment,
labor, and fuel costs could be tracked by the use of cost indexes. It is sometimes desirable to express
these trends in terms of rates of inflation (f). This can be done using the cost indexes as follows:

(9.15)

where n = time span in years

f = average inflation rate over the time span

j = arbitrary year

The use of Equation (9.15) to estimate the inflation rate is illustrated in Example 9.18.

Example 9.18

What was the average rate of inflation for the costs associated with building a chemical plant over the
following periods?
a. 1995 through 2001
b. 2001 through 2007

From Table 7.4, the values of the Chemical Engineering Plant Cost Index (CEPCI) are
CEPCI (1995) = 381
CEPCI (2001) = 394
CEPCI (2007) = 500

Equation (9.15) yields
6
a. 394 = (381)(1 + f) ,
f = 0.006 (0.6% p.a.)
b. 500 = 394 (1 + f) 6
f = 0.049 (4.9% p.a.)

To understand inflation, it is necessary to distinguish between cash and the purchasing power (for the
purchase of goods and services) of cash. Inflation decreases this purchasing power with time. All the
previous discussions on A, P, and F are given in terms of cash and not in terms of the relative purchasing
power of this cash. The term F’ is introduced, which represents the purchasing power of future cash. This

purchasing power can be estimated using Equation (9.16).

(9.16)