Financial Decision Criteria and Real Price Changes

SYNOPSIS

General price indices such as the Consumer Price Index (CPI) or the Production Price Index (PPI) represent the weighted average of prices of a large number of goods and services. Such price indices therefore cannot accurately measure the changes in the price of individual goods or services. Theoretically it is possible for each price within the cash flow of a forestry project to change at a rate which differs from that of a general price index. These individual price changes should be taken into account in financial analyses. Financial decision criteria adjusted to accommodate real price changes would therefore be very useful.

Additional key words:

• Forest finance
• inflation
• discounted cash flow analysis