conversely a major shortcoming of the lifo method is that in a period of inflation the costs allocated to ending inventory may be significantly understated in terms of current cost.the understatement becomes greater over prolonged periods of inflation if the inventory includes goods purchased in one or more prior accounting periods. for axample caterpillar has used lifo for more than 50 years. its balance sheet shows ending inventory of 14,544 million. but the inventory's actual current cost if fifo has been used is 16,966 million