INDEXATION Meaning and
Definition
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Indexation is a financial term that refers to the adjustment of the value of an asset, liability, or income to account for inflation or changes in the price level over time. It is a process used to maintain the real value of a financial item in relation to the purchasing power of a currency.
The goal of indexation is to ensure that the value of an item, such as a wage, rental income, or pension, is not eroded by inflation. It involves periodically updating the value of the item based on an index, such as the consumer price index (CPI), which measures the average price level of a basket of goods and services. By adjusting an item's value in line with changes in the index, indexation aims to keep the purchasing power of the item constant.
Indexation is commonly used in various financial instruments, including bonds, annuities, salaries, and taxation. For example, bondholders may receive interest payments that are adjusted for inflation, ensuring that the bond's real yield remains consistent. Similarly, in countries with progressive taxation systems, tax brackets may be adjusted annually based on the CPI to prevent individuals from being pushed into higher tax brackets due to inflationary effects.
Overall, indexation is a mechanism employed to retain the real purchasing power of financial items and to provide protection against the erosion of value caused by inflation or changing price levels.
Common Misspellings for INDEXATION
Etymology of INDEXATION
The word "indexation" is derived from the Latin word "index", which means "a pointer" or "a sign". It is formed by adding the suffix "-ation", which denotes the action or process of something, to the base word "index". Therefore, "indexation" refers to the act or process of creating or using an index, typically in reference to information or prices.
Similar spelling words for INDEXATION
- indication,
- indignation,
- index finger,
- indiction,
- index case,
- intoxation,
- integrate,
- integrating,
- indexing,
- intestate,
- indecent,
- integrator,
- integration,
- Indicating,
- integrated,
- intestinal,
- intoxication,
- intestine,
- induction,
- indexical,
- indecision.
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