- CFA Exams
- 2023 Level I
- Topic 5. Equity Valuation
- Learning Module 22. Industry and Company Analysis
- Subject 5. Inflation and Deflation
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Subject 5. Inflation and Deflation PDF Download
Increases in the costs of inputs will most likely result in higher prices for end products.
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.
Learning Outcome Statementsi. explain how to forecast industry and company sales and costs when they are subject to price inflation or deflation;
CFA® 2023 Level I Curriculum, Volume 3, Module 22
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