Inflation and deflation affect the accuracy of a company's forecasts. The impact of inflation and deflation varies in the case of revenues and expenses.

Increases in the costs of inputs will most likely result in higher prices for end products. Higher costs passed on to customers might hurt a company's sales volume.

Whether a company can pass on inflation through higher prices depends on factors such as industry structure, consumer demand elasticity, different inflation rates in different countries, and company's pricing strategy and market position. In the highly competitive consumer goods market, for example, volume and pricing are inversely related due to elastic consumer demand. Revenue can decline even if unit prices are raised.

Other factors, such as the geographic mix of a company's operations, currency rates, company strategy, cost structure and competitive environment, should be considered when evaluating the impact of inflation and deflation on the company's revenues, expense and costs. Analysts can then try to determine what part of inflation flows through to a company's earnings.