Inventory accumulation and expectations of real income,inflation and interest rates

A model is developed and tested to relate three categories of inventory accumulation to expectations of real income, inflation and interest rates through anticipated real corporate wealth effects. Expected future inflation leads firms to accumulate more inventories in advance financing them by means of ‘liquid’ assets to offset an anticipated loss of real wealth. Expected increases in interest rates have an impact on inventory accumulation opposite to that of expected future inflation. Past wealth effects are also allowed for by means of the accelerator principle. Finally, the growth rate of real income generally has a signifiant influence on inventory accumulation.