What is indexing?

Indexation is a means of a financial item, usually a claim or tax tax, associated with another value, usually a price index. When the value linked to an increase or decreases, the amount of payment automatically changes to reflect this increase or decline. The purpose of indexing is to minimize or eliminate the impact of inflation on those who receive or make these payments. In some cases, the current values ​​are compared with values ​​years ago; In others, the comparison is the month -on -month, month -on, year -on -year or in the present period with the corresponding period from the previous year. In the United States, the most commonly used level of inflation is the consumer price index (CPI), which is a change in the value of the average "market basket" of generally necessary goods and services, including such things such as food, housing, transport and health care. The marketplace value is compared with earlier values ​​and the ratio of the change is the actual amount of the index.

The best known payments that are subject to indexing are payments made for pensioners. The basic logic for retirement payments is that, since inflation is almost inevitable, pension retirements would automatically lose their purchase power over time because they are not eligible to increase wages or salaries available to active workers. In the US, the payouts of social security benefits are retired annual living costs (Cola), so pensioners do not suffer from a significant loss of their benefits "purchasing power for inflation. Income that results from a worker who earns more money, although the purchasing power of this additional income decreases. Both these modifications of indexing are based on CPI change, although no one is madeé adjustments if the change is negative.

indexing may be a controversial question because it affects the amount of taxes paid by individual taxpayers, amounts paid from the public cash register and the amount of pensions received and others. If social security adjustments are announced in the US, for example, pensioners generally complain that adjustment is not enough to meet the effects of inflation and claim that CPI is an inaccurate degree of inflation.