Kennedy Space Center NextGen Website

Aerospace Cost Inflation

For aerospace, there is little work on the subject of inflation and how it affects cost estimates. While there is the standard practice of using inflation guidance from a budget process when providing cost estimates, inflating future costs by X% a year, or using the NASA New Start Inflation Indices, these are ways in which the topic of inflation is often avoided rather than understood. An inflation rate in budget guidance is more an assumed level of budgetary increases tolerable for planning purposes, not an actual, realistic or estimated rate at which costs (or budgets) for a given product or service in a specific market like aerospace, or science and planetary probes, or human spaceflight, are likely to increase year over year, all other things being equal.

The following are a handful of work relevant to inflation in aerospace products and services.

External Links:

  • Martin Elvis, "What can Space Resources do for Astronomy and Planetary Science?", Harvard-Smithsonian Center for Astrophysics, July 2016.
  • "But the price was high. Figure 3 shows how the (inflation-corrected) cost of these missions increased by a factor of about 20 over 30 years. This is an exponential growth rate of 10% per year. The same plot for other wavelength bands would be much the same. Ian Crawford has shown that Mars landers have grown even faster, at about 15% per year [3]. Historical growth rates for the US GDP have been fairly steady at about 2% a year for the past century and more (1871 – 2001)6. Clearly, growth rates for astronomy that are four times faster than that of the economy are unsustainable."
  • Stanley A. Horowitz, Alexander O. Gallo, Daniel B. Levine, Robert J. Shue, Robert W. Thomas, "The Use of Inflation Indexes in the Department of Defense", Institute for Defense Analysis, May 2012.
  • "However, if Comptroller rates are used to estimate future costs and those costs are expected to grow faster than the Comptroller rates, programs will be systematically underfunded, leading to unnecessarily high real program cost growth."
    "The use of the GDP deflator to measure price increases for all elements of DoD procurement, including all Major Defense Acquisition Programs (MDAPs), is inappropriate. The GDP deflator may empirically be a reasonable proxy for procurement inflation overall, but it does not allow the Department to capture differences between, for example, ships, aircraft, and vehicles. However, the initial examination provided here does not clearly indicate what alternative indexes would provide better estimates of inflation for procuring the various types of systems."
  • Gregory A. Wise, Charles B. Lochbryn, David J. Oprisu, "Department of Defense Inflation Handbook 2nd Edition", Prepared for Office of the Secretary of Defense, Cost Analysis and Program Evaluation, OSD CAPE, June 2011.
  • "It may take seven years, for example, to build an aircraft carrier, but the ongoing costs of supporting the aircraft carrier and its onboard systems will stretch for decades. Only a small proportion of the expenditures for that program will occur in the first year covered by the Budget. When making decisions concerning issues that have long term spending implications inflationary effects can be substantial. In the absence of inflation, it would be sufficient to add up all of the costs as if they occurred in base year dollars. But in the presence of inflation, uninflated base year dollar amounts may buy only a fraction of the anticipated requirement several years into the future."