Adjusting a value for inflation each month using rolling 12-monthly inflation figures
In the style of the Bank of England's Inflation Calculator, you can do the calculation like so. The third column is an index made from the inflation figures and the forth column shows the inflation-adjusted values.  Using the index to calculate the difference in costs, for example: The formulas used to produce the table above are shown below. "The actual increase in the cost of living for one month over the previous month cannot be calculated from the annualized increase in cost over the entire previous year. Consider the hypothetical case of a very stable economy, where prices stay constant for decades.  Nevertheless, the authorities issue monthly statements, reporting that the change in the cost of living, for the last month, year over year, is 0.00%.  Then they go back to sleep for another month. Then, something happens, say in August, 2001.  It causes a permanent large increase in the cost of many parts of the cost of living components. So, in September, the authorities announce that the cost of living for the end of August, 2001, compared to August a year ago, was up 10%. Great consternation results.  Politicians pontificate, unions agitate on behalf of their members, etc... The economy returns to its customary behavior, except for that one-time permanent increase from August, 2001.  So for the next eleven months, each month, the authorities compare the previous months prices to the prices from exactly a year ago, and announce that inflation, year over year, is still 10%.   Finally, we reach September, 2002.  The authorities look at prices for the end of August, 2002, and compare them to the prices from the end of August, 2001 (post ""event"").  Wonder of wonders, the inflation rate is back to 0.00%!!  Absolutely nothing happened in August 2002, yet the rate of inflation dropped from 10% to 0%."
The question lacks specificity, i.e. when does the initial investment occur, now or one period from now?  If now then it is a perpetuity due.   I  will consider under 2 scenarios, A and B, relating to the size of the initial investment. A. Assuming that the initial investment (C_0) occurs now and each payment thereafter has the relationship (1+g) with this investment then the relevant base equation is that for the present value of a growing perpetuity due, expressed in terms of C_0, i.e.  PVGPD=  [C_0*(1+g)*(1+i)]/(i-g). Now, to suit the question asked, we can see that i=fixed rate of return (f) and g = expected inflation rate (e) such that we can rewrite the equation as PVGPD = [C_0*(1+e)*(1+i)]/(i-e].   We know that f = is a fixed nominal rate and must be adjusted for e to calculate the real rate (r) according to the equation f=(1+r)*(1+e)-1. Therefore  PVGPD = [C_0*(1+e)(1+(1+r)(1+e)-1)]/((1+r)*(1+e)-1-e] Tidying up  PVGPD = {C_0*(1+r)(1+e)^2}/[r(1+e)] PVGPD = [C_0*(1+r)*(1+e)]/r B. Assuming that the initial investment (X) is not equal to each subsequent perpetual payment (C_1) then the relevant base equation is that for the the initial investment plus the present value of a growing perpetuity, i.e.  PVGP=  X + [C_1/(i-g)] Rewriting  PVGP = X + [C_1/(f-e)]    Substituting PVGPD = X + {C_1/[(1+r)*(1+e)-1-e]} Tidying up  PVGPD = X + C_1/[r*(1+e)] If you have a lump sum, you could put it into a low risk investment (which should also have low fluctuations) right away to avoid the risk of buying at a down point.  Then move it into a higher risk investment over a period of time.  That way you'll buy more units when the price is lower than when it's higher. Usually I hear dollar cost averaging applied to the practice of purchasing a fixed dollar amount of an investment every week or month right out of your salary.  The effect is pretty minimal though, except on the highest growth portfolios, and is generally just used as a sales tool by investment councilors (in my opinion). "Everyone buys different kinds of goods. For example I don't smoke tobacco so I'm not affected by increased tobacco prices. I also don't have a car so I'm not affected by the reduced oil prices either. But my landlord increased the monthly fee of the apartment so my cost of living per month suddenly increased more than 10% relative to the same month a year before.  This is well known, also by the statistical offices. As you say, the niveau of the rent is not only time- but also location specific, so there are separate rent indices (German: Mietspiegel). But also for the general consumer price indices at least in my country (Germany) statistics are kept for different categories of things as well.  So, the German Federal Statistical Office (Statistisches Bundesamt) not only publishes ""the"" consumer price index for the standard consumer basket, but also consumer price indices  for oil, gas, rents, food, public transport, ... Nowadays, they even have a web site where you can put in your personal weighting for these topics and look at ""your"" inflation:  https://www.destatis.de/DE/Service/InteraktiveAnwendungen/InflationsrechnerSVG.svg Maybe something similar is available for your country?" The Finance functions in spreadsheet software will calculate this for you.  The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods.  The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this.  Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable.  The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly.  As far as the spreadsheet goes, this is for the Google Sheets -  Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative. "I think we'd need to look at actual numbers to see where you're running into trouble. I'm also a little confused by your use of the term ""unexpected expenses"". You seem to be using that to describe expenses that are quite regular, that occur every X months, and so are totally expected. But assuming this is just some clumsy wording ... Here's the thing: Start out by taking the amount of each expense, divided by the number of months between occurrences. This is the monthly cost of each expense. Add all these up. This is the amount that you should be setting aside every month for these expenses, once you get a ""base amount"" set up. So to take a simple example: Say you have to pay property taxes of $1200 twice a year. So that's $1200 every 6 months = $200 per month. Also say you have to pay a water bill once every 3 months that's typically $90. So $90 divided by 3 = $30. Assuming that was it, in the long term you'd need to put aside $230 per month to stay even. I say ""in the long term"" because when you're just starting, you need to put aside an amount sufficient that your balance won't fall below zero. The easiest way to do this is to just set up a chart where you start from zero and add (in this example) $230 each month, and then subtract the amount of the bills when they will hit. Do this for some reasonable time in the future, say one year. Find the biggest negative balance. If you can add this amount to get started, you'll be safe. If not, add this amount divided by the number of months from now until it occurs and make that a temporary addition to your deposits. Check if you now are safely always positive. If not, repeat the process for the next biggest negative. For example, let's say the property tax bills are April and October and the water bills are February, May, August, and November. Then your chart would look like this: The biggest negative is -370 in April. So you have to add $370 in the first 4 months, or $92.50 per month. Let's say $93. That would give: Now you stay at least barely above water for the whole year. You could extend the chart our further, but odds are the exact numbers will change next year and you'll have to recalculate anyway. The more irregular the expenses, the more you  will build up just before the big expense hits. But that's the whole point of saving for these, right? If a $1200 bill is coming next week and you don't have close to $1200 saved up in the account, where is the money coming from? If you have enough spare cash that you can just take the $1200 out of what you would have spent on lunch tomorrow, then you don't need this sort of account." "I wrote a little program one time to try to do this.  I think I wrote it in Python or something. The idea was to have a list of ""projected expenses"" where each one would have things like the amount, the date of the next transaction, the frequency of the transaction, and so on.  The program would then simulate time, determining when the next transaction would be, updating balances, and so on.  You can actually do a very similar thing with a spreadsheet where you basically have a list of expenses that you manually paste in for each month in advance.  Simply keep a running balance of each row, and make sure you don't forget any transactions that should be happening. This works great for fixed expenses, or expenses that you know how much they are going to be for the next month.  If you don't know, you can estimate, for instance you can make an educated guess at how much your electric bill will be the next month (if you haven't gotten the bill yet) and you can estimate how much you will spend on fuel based on reviewing previous months and some idea of whether your usage will differ in the next month.  For variable expenses I would always err on the side of a larger amount than I expected to spend.  It isn't going to be possible to budget to the exact penny unless you lead a very simple life, but the extra you allocate is important to cushion unexpected and unavoidable overruns. Once you have this done for expenses against your bank account, you can see what your ""low water mark"" is for the month, or whatever time period you project out to.  If this is above your minimum, then you can see how much you can safely allocate to, e.g. paying off debt.  Throwing a credit card into the mix can make things a bit more predictable in the current month, especially for unpredictable amounts, but it is a bit more complicated as now you have a second account that you have to track that has to get deducted from your first account when it becomes due in the following month.  I am assuming a typical card where you have something like a 25 day grace period to pay without interest along with up to 30 days after the expense before the grace period starts, depending on the relationship between your cut-off date and when the actual expense occurs." "You could use any of various financial APIs (e.g., Yahoo finance) to get prices of some reference stock and bond index funds.  That would be a reasonable approximation to market performance over a given time span. As for inflation data, just googling ""monthly inflation data"" gave me two pages with numbers that seem to agree and go back to 1914.  If you want to double-check their numbers you could go to the source at the BLS. As for whether any existing analysis exists, I'm not sure exactly what you mean.  I don't think you need to do much analysis to show that stock returns are different over different time periods." Here's a good inflation calculator based on official US government sources: http://www.westegg.com/inflation/ You can get a good idea of the affect of productivity gains on prices by comparing price differences between different commodities. For example, eggs sold for $0.50-0.60/dozen in 1920, and are usually about $2.50/doz where I live. In real terms, the price actually declined from 1920 to 2010. "First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether you hold equity, bonds, derivatives, etc., the real value of those assets is declining because of inflation, all else being equal. For example, if I invest $100 in an asset that pays a 10% rate of return over the next year, and I sell my entire position at the end of the year, I have $110 in nominal terms. Inflation affects the real value of this asset regardless of its asset class because those $110 aren't worth as much in a year as they are today, assuming inflation is positive. An easy way to incorporate inflation into your calculations of rate of return is to simply subtract the rate of inflation from your rate of return. Using the previous example with inflation of 3%, you could estimate that although the nominal value of your investment at the end of one year is $110, the real value is $100*(1 + 10% - 3%) = $107. In other words, you only gained $7 of purchasing power, even though you gained $10 in nominal terms. This back-of-the-envelope calculation works for securities that don't pay fixed returns as well. Consider an example retirement portfolio. Say I make a one-time investment of $50,000 today in a portfolio that pays, on average, 8% annually. I plan to retire in 30 years, without making any further contributions (yes, this is an over-simplified example). I calculate that my portfolio will have a value of 50000 * (1 + 0.08)^30, or $503,132. That looks like a nice amount, but how much is it really worth? I don't care how many dollars I have; I care about what I can buy with those dollars.  If I use the same rough estimate of the effect of inflation and use a 8% - 3% = 5% rate of return instead, I get an estimate of what I'll have at retirement, in today's dollars. That allows me to make an easy comparison to my current standard of living, and see if my portfolio is up to scratch. Repeating the calculation with 5% instead of 8% yields 50000 * (1 + 0.05)^30, or $21,6097. As you can see, the amount is significantly different. If I'm accustomed to living off $50,000 a year now, my calculation that doesn't take inflation into account tells me that I'll have over 10 years of living expenses at retirement. The new calculation tells me I'll only have a little over 4 years. Now that I've clarified the basics of inflation, I'll respond to the rest of the answer.  I want to know if I need to be making sure my investments span multiple currencies to protect against a single country's currency failing. As others have pointed out, currency doesn't inflate; prices denominated in that currency inflate. Also, a currency failing is significantly different from a prices denominated in a currency inflating. If you're worried about prices inflating and decreasing the purchasing power of your dollars (which usually occurs in modern economies) then it's a good idea to look for investments and asset allocations that, over time, have outpaced the rate of inflation and that even with the effects of inflation, still give you a high enough rate of return to meet your investment goals in real, inflation-adjusted terms. If you have legitimate reason to worry about your currency failing, perhaps because your country doesn't maintain stable monetary or fiscal policies, there are a few things you can do. First, define what you mean by ""failing."" Do you mean ceasing to exist, or simply falling in unit purchasing power because of inflation? If it's the latter, see the previous paragraph. If the former, investing in other currencies abroad may be a good idea. Questions about currencies actually failing are quite general, however, and (in my opinion) require significant economic analysis before deciding on a course of action/hedging. I would ask the same question about my home's value against an inflated currency as well. Would it keep the same real value. Your home may or may not keep the same real value over time. In some time periods, average home prices have risen at rates significantly higher than the rate of inflation, in which case on paper, their real value has increased. However, if you need to make substantial investments in your home to keep its price rising at the same rate as inflation, you may actually be losing money because your total investment is higher than what you paid for the house initially. Of course, if you own your home and don't have plans to move, you may not be concerned if its value isn't keeping up with inflation at all times. You're deriving additional satisfaction/utility from it, mainly because it's a place for you to live, and you spend money maintaining it in order to maintain your physical standard of living, not just its price at some future sale date. 1) I use dollars as an example. This applies to all currencies." Line one shows your 1M, a return with a given rate, and year end withdrawal starting at 25,000.  So Line 2 starts with that balance, applies the rate again, and shows the higher withdrawal, by 3%/yr.  In Column one, I show the cumulative effect of the 3% inflation, and the last number in this column is the final balance (903K) but divided by the cumulative inflation.  To summarize - if you simply get the return of inflation, and start by spending just that amount, you'll find that after 20 years, you have half your real value.  The 1.029 is a trial and error method, as I don't know how a finance calculator would handle such a payment flow. I can load the sheet somewhere if you'd like.  Note: This is not exactly what the OP was looking for. If the concept is useful, I'll let it stand. If not, downvotes are welcome and I'll delete. "I was afraid of this. If you are using 12 P/Y and 12 C/Y, then your interest rate should not be divided by 12. Also, you should use ""END"" as this means monthly payments are made at the end of the month - a usual default." As an expansion on the correct answer: Consider a really boring economy.  Nothing changes;  wages and prices stay constant for years at a time.  Every month the Consumer Price Index stays at 0%.   Then, something catastrophic happens, say on July 31, 2000. A cheap local source for a vital resource runs out, and it must be obtained from a higher cost source.  Floods cut internal road networks, resulting in higher transportation costs.  Whatever.  The new situation is permanent. As a result, the next month, August, 2000, prices go up 5%.  That is, 5% higher than the previous month, July, 2000, and 5% higher than a year previously, August 1999. There is a lot of consternation, and politicians each promise that they and only they can wrestle inflation to the ground. But, when the figures for September, 2000 come out, inflation stays the same.  Prices are the same as in August, 2000, and 5% higher than in September, 1999. This goes on for months.  Nothing changes, prices stay the same, and the inflation rate, year over year, stays at 5%. Finally, the figures for August, 2001 come out.  Wonder of wonders;  prices are the same as in August, 2000, and inflation drops to zero.   And the politicians all take the credit. Short version: inflation year over year changes either because of what in now included in the month just past, or what is now excluded from a year ago. "There has been almost no inflation during 2014-2015. do you mean rental price inflation or overall inflation? Housing price and by extension rental price inflation is usually much higher than the ""basket of goods"" CPI or RPI numbers. The low levels of these two indicators are mostly caused by technology, oil and food price deflation (at least in the US, UK, and Europe) outweighing other inflation. My slightly biased (I've just moved to a new rental property) and entirely London-centric empirical evidence suggests that 5% is quite a low figure for house price inflation and therefore also rental inflation. Your landlord will also try to get as much for the property as he can so look around for similar properties and work out what a market rate might be (within tolerances of course) and negotiate based on that. For the new asked price I could get a similar apartment in similar condos with gym and pool (this one doesn't have anything) or in a way better area (closer to supermarkets, restaurants, etc). suggests that you have already started on this and that the landlord is trying to artificially inflate rents. If you can afford the extra 5% and these similar but better appointed places are at that price why not move? It sounds like the reason that you are looking to stay on in this apartment is either familiarity or loyalty to the landlord so it may be time to benefit from a move." These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10.  The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result.  You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there.  (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.) "Anyone who has any business looking at growth numbers will know thay are meaningless in the first year,  So all they need to know is that it's the first year.    It's no different than the Billboard music charts' treatment of the ""last week's chart ranking"" and ""movement up/down"" columns.  It will help with visual layout if the figure used is about the same size as a percentage number.   ""New"" fits nicely."