I knew about it but I am wondering whether or not the natural inflation on HP is counted when you buy the token off the market? Or does it only count if you don't change the amount of LHP you have?
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Good question :) Of course the delegation increases over time so for example: after you buy 100 LHP, some time later it give 100.1 HP delegation. When you buy additional 5 LHP, the delegation will be 105.1 HP and it will continue to grow over time.
What happens in the case one sells LHP and how would the reduction be calculated?
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When selling you remove delegated HP proportionally to the amount of sold LHP - so not all inflated HP delegation is removed.
Good observation, that would be a good question for @cardboard. I will say that with holding 2083 tokens, I have a delegation of 2184 HP... that's a 4.6% increase, I wonder if that's the natural inflation included over time? That may come for holding them so long, new tokens may not be like that.