Indexation

AAA

DEFINITION of 'Indexation'

Linking adjustments made to the value of a good, service or other metric, to a predetermined index. Indexation requires the identification of a price index and whether a linking the value to the price index, will accomplish the organization's goals. Indexation is most commonly used with wages in a high inflation environment.

INVESTOPEDIA EXPLAINS 'Indexation'

Businesses may use indexation to match an employee's salary to the inflation rate, meaning that an increase in the inflation rate over a period of time, will lead to an increase in salary. This particular type of indexation is called a cost of living increase (COLA). Indexation is a pre-specified process, meaning that all parties involved are typically aware of how the link works.

RELATED TERMS
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  2. Cost Of Living Adjustment - COLA

    An adjustment made to Social Security and supplemental security ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  6. Nordic Model

    The social welfare and economic systems adopted by Nordic countries.
Related Articles
  1. Investing Basics

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  2. Retirement

    Maximize Your Social Security Benefits

    The plan's cost of living adjustments can provide protection against inflation.
  3. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  4. Taxes

    How To Save More For Your Retirement

    The Economic Growth and Tax Relief Reconciliation Act of 2001 made it easier to prepare for the future. Will you be ready?
  5. Options & Futures

    The Lowdown On Index Funds

    If you can't beat the market, why not join it? Read on to go over your options.
  6. Economics

    How does a high discount rate affect the economy?

    Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow money from the Federal Reserve.
  7. Economics

    No Exit: What Could Happen If the Eurozone Breaks Up?

    There is no exit strategy for nations in the eurozone or the EU because most members acknowledge that they are far better off together than apart.
  8. Economics

    How do economies of scale work with globalization?

    Discover how globalization can lead to unprecedented economies of scale for firms across the world, leading to higher global efficiency and productivity.
  9. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.
  10. Trading Strategies

    How can retirees protect their wealth in a bear market?

    Look at some helpful hints about how to protect your retirement nest egg when the stock market is underperforming or the economy is in recession.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center