Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation. Applying a cost-of-living escalation COLA clause to a stream of periodic payments protects the real value of those payments and effectively transfers the risk of inflation from the payee to the payor, who must pay more each year to reflect the increases in prices. Thus, inflation indexation is often applied to pension payments, rents and other situations which are not subje market.
