Indexation is a method whose use can be associated with which one of the following?

Indexation is a technique used to adjust payments, such as wages, pensions, or interest, to maintain their purchasing power against inflation [1]. It involves linking these payments to a specific price index, such as the Consumer Price Index (CPI) or Wholesale Price Index (WPI), to ensure that the real value of the payment remains stable as prices rise [2]. In the context of labor markets, indexation is frequently used in wage setting and collective bargaining agreements through Cost-of-Living Adjustment (COLA) clauses. These clauses automatically increase nominal wages based on changes in the price level, thereby fixing wage compensation in real terms. While indexation helps individuals cope with inflation, it is not a method for controlling inflation itself; in fact, high wage indexation can sometimes trigger feedback loops that amplify inflationary shocks.

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.18 Inflation Indices > p. 30
2. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 2: National Income Accounting > 2.4 NOMINAL AND REAL GDP > p. 29