Inflation and Escalation Guidance

Inflation and Escalation

The Inflation and Escalation Best Practices for Cost Analysis Memo and the Inflation and Escalation Best Practices for Cost Analysis - Analyst Handbook focus on clarifying terminology and introducing best practices for the uses of price indexes in cost analysis for the Department of Defense (DoD). It distinguishes between two major types of price indexes:

  1. "inflation," which is an economy-wide increase in the average price level; and
  2. “escalation," which reflects changes in the prices of specific goods and services.

The Director, Cost Assessment and Program Evaluation (DCAPE) authorized the publication of this Handbook to ensure the development of realistic cost estimates and the proper presentation of those cost estimates for decision making.

The Department of Defense Inflation Handbook: 2nd Edition provides a comprehensive treatment on the topic of inflation (and not escalation), with a focus of common applications, including inflation adjustment, programming and budgeting, budget analysis, and cost estimation.