Determining amount of inflation between two dates
You want percent change between the two numbers listed under whatever heading you'll be using in the CPI. As an example, you'd probably want to use the All Items heading listed here on Page 4 of the August 2016 CPI tables as 240.853, and from August 2015 was listed as 238.316.  Percent change is  So 1.06% inflation from August 2015 to August 2016.
The price inflation isn't a percentage, it's a fixed amount. If the dealer adds $R to the price of both the trade-in and the purchased car, then everyone ends up with the right amount of money in their pockets. So your formula should be: D + T + R = 0.1 * (P + R) Inflation can be a misleading indicator. Partly because it is not measured as a function of the change in prices of everything in the economy, just the basket of goods deemed essential. The other problem is that several things operate on it, the supply of money,  the total quantity of goods being exchanged, and the supply of credit. Because the supply of goods divides - as more stuff is available prices drop - it's not possible to know purely from the price level, if prices are rising because there's an actual shortage (say a crop failure), or simply monetary expansion. At this point it also helps to know that the total money supply of the USA (as measured by total quantity of money in bank deposits) doubles every 10 years, and has done that consistently since the 1970's.  USA Total Bank Deposits So I would say Simon Moore manages to be right for the wrong reasons. Despite low inflation, cash holdings are being proportionally devalued as the money supply increases. Most of the increase, is going into the stock market. However, since shares aren't included in the measures of inflation, then it doesn't influence the inflation rate. Still, if you look at the quantity of shares your money will buy now, as opposed to 5 years ago, it's clear that the value of your money has dropped substantially.  The joker in the pack is the influence of the credit supply on the price level. "Note that the series you are showing is the historical spot index (what you would pay to be long the index today), not the history of the futures quotes. It's like looking at the current price of a stock or commodity (like oil) versus the futures price.  The prompt futures quote will be different that the spot quote. If you graphed the history of the prompt future you might notice the discontinuity more. How do you determine when to roll from one contract to the other? Many data providers will give you a time series for the ""prompt"" contract history, which will automatically roll to the next expiring contract for you.  Some even provide 2nd prompt, etc. time series.  If that is not available, you'd have to query multiple futures contracts and interleave them based on the expiry rules, which should be publicly available. Also is there not a price difference from the contract which is expiring and the one that is being rolled forward to? Yes, since the time to delivery is extended by ~30 days when you roll to the next contract. but yet there are no sudden price discontinuities in the charts. Well, there are, but it could be indistinguishable from the normal volatility of the time series." Inflation is not applicable in the said example. You are better off paying 300 every month as the balance when invested will return you income. While the standard measure of inflation, the CPI, has [severe problems](https://www.forbes.com/sites/perianneboring/2014/02/03/if-you-want-to-know-the-real-rate-of-inflation-dont-bother-with-the-cpi/), there are still a huge range of inflation statistics from the various M values to specific commodity prices. Regardless of the relative value of any of these, stealing pension funds is immoral, evil, and destabilizing. "Inflation is an attempt to measure how much less money is worth. It is a weighted average of some bundle of goods and services price's increase.  Money's value is in what you can exchange it for, so higher prices means money is worth less. Monthly inflation is quoted either as ""a year, ending on that month"" or ""since the previous month"".  As the values differ by more than a factor of 10, you can usually tell which one is being referred to when they say ""inflation in August was 0.4%, a record high"" or ""inflation in August was 3.6%"".  You do need some context of the state of the economy, and how surprised the people talking about the numbers are.  Sometimes they refer to inflation since the last month, and then annualize it, which adds to the confusion. ""Consumer Inflation""'s value depends on what the basket of goods is, and what you define as the same ""good"".  Is a computer this year the same as the last?  If the computer is 10x faster, do you ignore that, or factor it in? What basket do you use?  The typical monthly consumables purchased by a middle class citizen?  By a poor citizen?  By a rich citizen?  A mixture, and if so which mixture? More detailed inflation figures can focus on inflation facing each quntile of the population by household income, split durable goods from non-durable goods from services, split wage from non-wage inflation, ignore volatile things like food and energy, etc. Inflation doesn't directly cause prices to raise; instead it is a measure of how much raise in prices happened.  It can easily be a self-fullfilling prophesy, as inflation expectations can lead to everyone automatically increasing the price they charge for everything (wages, goods, etc). Inflation can be viewed as a measurement of the ""cost of holding cash"".  At 10% inflation per year, holding a million dollars in cash for a year costs you 100,000$ in buying power.  At 1% inflation it costs 10,000$.  At 0.1% inflation, 1000$. Inflation of 10% in one year, followed by 10% the next, adds up to 1.1*1.1-1 = 21% inflation over the two years.  For low inflation numbers this acts a lot like adding; the further from 0% you get the more the lower-order terms make the result larger.  1% inflation for two years adds up to 2.01%, 10% over two years 21%, 100% over two years 300%, 1000% over two years 12000%, etc.  (and yes, some places suffer 1000% inflation)" "When you're calculating the cash flows used to compute an IRR, with regard to the expenses used to calculate those cash flows:  Do you assume that expenses are going to be higher than they would be today, by using an assumed inflation rate?   Or is everything (all cash flows) assumed to be in today's dollars, and you account for inflation's effect on your actual returns at ""the end"" by subtracting off the inflation rate from the IRR?" Inflation is basically this:  Over time, prices go up! I will now address the 3 points you have listed. Suppose over a period of 10 years, prices have doubled.  Now suppose 10 years ago I earned $100 and bought a nice pair of shoes.  Now today because prices have doubled I would have to earn $200 in order to afford the same pair of shoes.  Thus if I want to compare my earnings this year to 10 years ago, I will need to adjust for the price of goods going up.  That is, I could say that my $100 earnings 10 years ago is the same as having earned $200 today, or alternatively I could say that my earnings of $200 today is equivalent to having earned $100 10 years ago. This is a difficult question because a car is a depreciating asset, which means the real value of the car will go down in value over time. Let us suppose that inflation doesn't exist and the car you bought for $100 today will depreciate to $90 after 1 year (a 10% depreciation). But because inflation does exist, and all prices will be 0.5% higher in 1 years time, we can calculate the true selling price of the car 1 in year as follows: 0.5% of $90 = 0.005*90 = $0.45 Therefore the car will be $90 + $0.45 = $90.45 in 1 years time. If inflation is low, then the repayments do not get much easier to pay back over time because wages have not risen by as much.  Similarly the value of your underlying asset will not increase in value by as much. However as compensation, the interest rates on loans are usually lower when inflation is lower. Therefore generally it is better to get a loan in times of high inflation rather than low inflation, however it really depends on how the much the interest rates are relative to the inflation rate. The general discussion of inflation centers on money as a medium of exchange and a store of value. It is impossible to discuss inflation without considering time, since it is a comparison between the balance between money and goods at two points in time. The whole point of using money, rather than bartering goods, is to have a medium of exchange. Having money, you are interested in the buying power of the money in general more than the relative price of a specific commodity. If some supply distortion causes a shortage of tobacco, or gasoline, or rental properties, the price of each will go up. However, if the amount of circulating money is doubled, the price of everything will be bid up because there is more money chasing the same amount of wealth. The persons who get to introduce the additional circulating money will win at the expense of those who already hold cash. Most of the public measures that are used to describe the economy are highly suspect. For example, during the 90s, the federal government ceased using a constant market basket when computing CPI, allowing substitutions. With this, it was no longer possible to make consistent comparisons over time. The so-called Core CPI is even worse, as it excludes food and energy, which is fine provided you don't eat anything or use any energy. Therefore, when discussing CPI, it is important to understand what exactly is being measured and how. Most published statistics understate inflation. "As Michael McGowan says, just because gold has gone up lots recently does not mean it will continue to go up by the same amount. This plot:  shows that if your father had bought $20,000 in gold 30 years ago, then 10 years ago he would have slightly less than $20,000 to show for it. Compare that with the bubble in real estate in the US:  Update: I was curious about JoeTaxpayer's question: how do US house prices track against US taxpayer's ability to borrow?  To try to answer this, I used the house price data from here, the 30 year fixed mortgages here and the US salary information from here. To calculate the ""ability to borrow"" I took the US hourly salary information, multiplied by 2000/12 to get a monthly salary. I (completely arbitrarily) assumed that 25 per cent of the monthly salary would be used on mortgage payments.  I then used Excel's ""PV"" (Present Value) function to calculate the present value of the thirty year fixed rate mortgage. The resulting graph is below.  The correlation coefficient between the two plots is 0.93.  There are so many caveats on what I've done in ~15 minutes, I don't want to list them... but it certainly ""gives one furiously to think"" !! Update 2:  OK, so even just salary information correlates very well with the house price increases.  And looking at the differences, we can see that perhaps there was a spike or bubble in house prices over and above what might be expected from salary-only or ability-to-borrow." I have been charting the CPI reported inflation rate vs . the yeald on the 10-year T-note. Usually, the two like to keep pace with each other. Sometimes the T-note is a bit higher than the inflation rate, sometimes the inflation rate is a bit higher than the T-note yeald. One does not appear to follow the other, but (until recently) the two do not diverge from each other by much.  But all that changed recently and I am without an explanation as to why. Inflation dropped to zero (or a bit negative) yet the yeald on the 10-year T-note seemed to seek 2%.  Edit: If you give this response a downvote then please be kind enough to explain why in a comment.  Edit-2: CPI and 10-year T-note are what I have tracked, and continue to track. If you do not like my answer then provide a better one, yourself. Annual inflation was 15%+ in 1979, call it what you want, I call that hyper inflation.  And the CPI might say 1% since 2000 but the cost of gasoline and energy, the lifeblood of the economy, is left out in their calculation since ~1992.  Inflation right now is 10% if you calculate it the same way we did before 1980. EDIT: After reading one of the comments on the original question, I realized that there is a much more intuitive way to think about this. If you look at it as a standard PV calculation and hold each of the cashflows constant. Really what's happening is that because of inflation the discount rate isn't the full value of the interest rate. Really the discount rate is only the portion of the interest rate above the inflation rate. Hence in the standard perpetuity PV equation PV = A / r r becomes the interest rate less the inflation rate which gives you PV = A / (i - g). That seems like a much better way to get to the answer than all the machinations I was originally trying. Original Answer: I think I finally figured this out. The general term for this type of system in which the payments increase over time is a gradient series annuity. In this specific example since the payment is increasing by a percentage each period (not a constant rate) this would be considered a geometric gradient series. According to this link the formula for the present value of a geometric gradient series of payments is: Where P is the present value of this series of cashflows.   A_1 is the initial payment for period 1 (i.e. the amount you want to withdraw adjusted for inflation).   g is the gradient or growth rate of the periodic payment (in this case this is the inflation rate)   i is the interest rate   n is the number of payments This is almost exactly what I was looking for in my original question. The only problem is this is for a fixed amount of time (i.e. n periods). In order to figure out the formula for a perpetuity we need to find the limit of the right side of this equation as the number of periods (n) approaches infinity. Luckily in this equation n is already well isolated to a single term: (1 + g)^n/(1 + i)^-n}. And since we know that the interest rate, i, has to be greater than the inflation rate, g, the limit of that factor is 0. So after replacing that term with 0 our equation simplifies to the following: Note: I don't do this stuff for a living and honestly don't have a fantastic finance IQ. It's been a while since I've done any calculus or even this much algebra so I may have made an error in the math. "Hello! I am working on a project where I am trying to determine the profit made by a vendor if they hold our funds for 5 days in order to collect the interest on those funds during that period before paying a third party.  Currently I am doing ""Amount x(Fed Funds Rate/365)x5"" but my output seems too low. Any advice?" As BrenBarn points out in his comment, the real values are inflation adjusted values using the consumer price index (CPI) included in the spreadsheet.  The nominal value adjusted by the CPI gives the real value in terms of today's dollars. For example, the CPI for the first month (Jan 1871) is given as 12.46 while the most recent month (Aug 2016) has a reported CPI of 240.45. Thus, the real price (in today's dollars) for the 4.44 S&P index level at Jan 1871 is calculated as 4.44 x 240.45 / 12.46 = 85.68 (actually reported as 85.65 due to rounding of the reported CPIs).  And similarly for the other real values reported.