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Chapter 12

6.5 Index numbers and forecasting

The accuracy of forecasting is affected by the need to adjust historical data and
future forecasts to allow for price or cost inflation.

 When historical data is used to calculate a trend line or line of best fit, it should
ideally be adjusted to the same index level for prices or costs. If the actual cost
or revenue data is used, without adjustments for inflation, the resulting line of
best fit will include the inflationary differences.

 When a forecast is made from a line of best fit, an adjustment to the forecast
should be made for anticipated inflation in the forecast period

Illustrations and further practice

Now try TYU question 10 from Chapter 12.

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