The relevance of domestic and foreign capacity utilization rates in forecasting future inflation rate has been investigated empirically, using five industrialized countries for which the comparable data are available. It has been found that capacity utilization rates, both domestic and foreign, have a long run stable relationship with domestic inflation rate and a positive shock in the capacity utilization rate results in a significant, although a little bit delayed, acceleration in the domestic inflation rate. Various econometric techniques have been used and led to consistent empirical findings. The results in the present study, therefore, dispute the claim that an increase in capacity utilization rate may not necessarily lead to an accelerated inflation down the road. / Graduation date: 1995