Incorporating inflation rate in construction projects cost: Forecasting model

Over time, the change in the inflation rate causes cost overruns by deviating the prices of goods and services in construction projects that require practitioners to make budgeting revisions. Hence, this study aims to develop a construction rates forecasting model that can incorporate the changing impact of the inflation rate on construction rates and predict the prices in a particular year, which can be adjusted when developing the Bill of Quantities. Following the time series analysis standards, a mathematical model was developed using MATLAB for forecasting. Construction rates, building prices, labour wages and machinery rates were forecasted from 2020 to 2025 based on the data collected from 2013 to 2019. Akaike information criterion was used to validate the self-developed construction rate forecasting model. It was revealed that the model yielded better results when the construction rates were compared with the autoregressive integrated moving average time series model results. The rates forecasting model may be used for any construction project where rates are affected by the inflation effect.