Inflation and/or deflation can impact a company’s sales forecast over in the next five years and beyond. Net present value, for example, would be affected by drastic changes in inflation/deflation. Interest rates and investments would naturally feel the effects of inflation/deflation and should be a concern when calculating a long-term forecast.
In an “average” company, these issues may not be as much of a concern for short-term forecasting, but payback periods and the internal rate of return associated with long-term plans should be adjusted for periods of inflation or deflation. To prepare for such an occurrence, the analyzed data must be measured to include certain economic changes in the purchasing power of money.
By accounting for many assumptions and various scenarios, the results of the forecast will stand with more accuracy. Trends and prior periods of inflation/deflation must also be observed and factored into the current long-term forecast.
