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The Shipbuilding Composite Index and Its Rates of Change Compared With Economywide Inflation Rates

The Shipbuilding Composite Index and Its Rates of Change Compared With Economywide Inflation Rates

In most years, the Department of Defense provides a 30-year shipbuilding plan to the Congress. The plan details the ships that the Navy expects to procure, along with an estimate of the costs of procuring those ships. The Congressional Budget Office is directed by law to provide an independent assessment of the costs of the Navy’s plan.

CBO’s estimate of the costs of the Navy’s shipbuilding plan typically exceeds the Navy’s estimate. One reason is that when the Navy estimates the cost to build a ship in the future that is identical to one already built, it assumes that construction costs—in constant dollars—do not change. But the costs of labor and materials used in building naval ships have tended to grow faster than the costs of other goods and services in the economy. CBO accounts for that difference by comparing past increases in costs of building naval ships (that is, shipbuilding inflation)—using the Navy’s shipbuilding composite index (SCI), which has existed in its current form since 1980—with increases in costs of other goods and services in the economy (that is, economywide inflation), as measured by the gross domestic product (GDP) deflator. The agency regards the difference between shipbuilding inflation and economywide inflation as growth in the constant-dollar cost of building naval ships.

The SCI is divided into numerous categories and sub­categories. Those individual components can have different annual rates of change. In this report, CBO describes how the differences between the largest categories of the SCI and the GDP deflator have changed over time. On average, all the major components have grown more quickly than the GDP deflator has. All told, between 1980 and 2022, the SCI grew an average of 1.2 percentage points faster per year than the GDP deflator did, although the average difference between 2015 and 2022 was 0.4 percentage points. Looking ahead, a gap between the SCI and the GDP deflator of roughly 1 percentage point would be consistent with historical experience, in CBO’s assessment.

Originally published at https://www.cbo.gov/publication/59026

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