While many institutions budget inflation in, the NIH won’t allow it.

Inflationary Increases

Inflationary increases for future year commitments are not permitted. The NIH escalation policy applies to all cost categories (e.g., salaries/fringe, supplies, travel). Any justified reason for year-to-year increases within a budget category should be explained clearly in an applicant's budget justification. https://grants.nih.gov/grants/policy/nihgps/html5/section_13/13.3_application_requirements.htm#:~:text=There%20is%20no%20provision%20for,of%20the%20Just%2Din%2DTime

NIH Grants Policy Statement: . There is no provision for escalation in future years. NIH requires additional narrative budget justification if there is a variation in the number of modules requested from year to year. Further, when the pre-award review warrants such a request, NIH ICs may request a detailed budget as part of the Just-in-Time process.

https://www.ninds.nih.gov/funding/manage-your-award/pre-award/rules-and-policies-funding-consideration#:~:text=Inflationary%20increases%20for%20future%20year%20commitments%20are%20not%20permitted.

 

NIH Funding Policy Inflationary Increases for Future Years: 

Inflationary increases for future year commitments will be discontinued for all competing research grant awards issued in FY 2013 extending the policy established in FY 2012 (see NOT-OD-12-036), however adjustments for special needs (such as equipment and added personnel) will continue to be accommodated.

https://commonfund.nih.gov/fundingpolicy

 

In practice, I inflate the first year by a set percentage (typically 3%) and then the budget remains flat for the outer years of the project.