Updating the PEP Cost Index

Since the year 2000 the chemical industry has seen significant inflation in capital costs. At SRIC we have attempted to track the increases using our PEP Cost Index. This venerable index has shown remarkable staying power, tracking capital cost pricing levels with reasonable accuracy since the late 1970s. Over the past five years, however, we have received client feedback that our inflation tracking has lagged behind the cost levels that they were experiencing. SRIC is not alone in this. Chemical Engineering magazine's cost index (CEPCI) and other open source indices have also lagged compared to the cost experience of our clients.

With the acquisition of SRIC by IHS, we are now part of a larger organization which contains two major suppliers of macroeconomic and cost data: IHS Global Insight and IHS Cambridge Energy Research Associates (IHS CERA). Information from these two programs has given us the opportunity to assess where we stand on the PEP Cost Index. It also allows us potential access to data which might allow us to improve our PEP Cost Index offering.

To explain what we believe is happening we will first present a brief discussion of how the PEP Cost Index works. This will be followed by a discussion of changes we have made over time from the 1978 establishment of the PEP Cost Index in its present form to the current date. We will then present some of the data that are newly available to us from IHS CERA and IHS Global Insight. We will compare some of these new inputs with the legacy US government time series that we (along with the other traditional indices) are currently using. Finally, we will suggest some steps forward in how we might modify the PEP Cost Index in light or our findings.