Cost-of-living adjustments (COLAs) are contract clauses that explicitly tie wages and benefits to the inflation rate. They arrange for automatic (often quarterly) wage increases that depend on the rise in a specific price index (generally the Consumer Price Index for urban wage earners, or CPI-W). Because COLAs are fairly simple provisions to write, they might seem a relatively costless way to adjust for inflation.
Suggested citation: “Cost-of-Living Adjustments,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-03, pp. 12, 03.01.1997.