Inflation and Highway Economic Analysis

Increases in funding highway construction and maintenance programs have failed to keep pace with inflation over the past decade. It can be shown that the reduction in funding is an indirect result of inflation. Under these conditions, the effects of inflation cannot be ignored in engineering economic evaluation of alternatives. This paper develops the methodology for incorporating the effects of inflation in economic analyses within the current highway funding scenario. The magnitudes of the consequences of ignoring the effects of inflation are shown to be significant. The situations most profoundly affected are the evaluation of replacement alternatives versus maintenance of existing facilities and the deferring of needed capital expenditures.