W5_DR_Forecasting Inflation Rate

1.Problem Definition

We have a project that going in March 2015, nevertheless because an execution needs a stop plant condition so that a project delayed until August 2016. We will re-calculate a budgetary contract by forecasting inflation rate methods. Inflation rate will do regression analysis and using power parity of gold, CPI and inflation calculator [3].

2.Identify the Feasible Alternatives

Inflation Rate will be predicted using regression analysis between gold value and CPI value and it will provide three equation which will be categorized by  worst case, best case and most likely. Those three regression result will be used to get the predicted value.

3.Development of the Outcome for Alternative

We used 20 years data in the past with annually average [1],

 Power of Parity Gold Regression

Data [1]

Table 1. Data Gold Price Unit per Troy Ounce (USD) in 20 years

 Polynomial Regression

Figure 1. Polynomial Regression Gold Price (20 years)

Since Gold not always increasing  we will using PERT to get value with optimum confidence level;

Table 2. Gold Price PERT Analysis

Figure 2. Regression CPI in 2015

Since CPI not always increasing  we will using PERT to get value with optimum confidence level;

Table 3. CPI PERT Analysis

US Inflation Calculator

Figure 3. Inflation Rates Graph [3]

US Inflation Rates Graph = 0,7 % shown on figure 3.

4.Selection Criteria

We will use forecasting which reliable by PERT to get value with optimum confidence level.

5.Analysis and Comparison of the Alternatives

In this case, owner’s perspective will choose with reliable (the lowest) forecast inflation rate value so that CPI Inflation is not an option to be chossen. CPI usually has difference value between government and non-government.

Forecast PERT value is bigger than US Inflation calculator and forecast inflation rate Gold value. If we use gold we will have reliable data since gold value is compared through out of the world and gold values are not easily influenced with state policy. Nevertheless, the result is deflation (-6,237%) and our management couldn’t accept it.

US Inflation calculator value is the best one, which get a lower value than forecast PERT value.

 

6.Selection of the Preferred Alternatives

For now we hold onto US Inflation calculator forecast 0,7%

 

7.Performance Monitoring and the Post Evaluation of Result

Monitoring can be done each month to see if equation forecast are projecting actual result, CPI and Gold Price can be used also as comparator.

 

References:

1. World Gold Council. (2015). Gold Price. Retrieved from http://www.gold.org/investment/interactive-gold-price-chart/2015,
2. Badan Pusat Statistik Indonesia. (2015, February 11). Consumer Prices Indices and Inflation, Retrieved fromhttp://www.bps.go.id/eng/aboutus.php?inflasi=1
3. US Inflation Calculator. (2015). Retrieved from http://www.usinflationcalculator.com/