indexation etymology

Etymology

The word "indexation" is derived from the Latin word "index," which means "a pointer or indicator."

Meaning and Origin

Indexation refers to the process of adjusting the value of something, such as an income or a price, in accordance with an index or measure of inflation. It is a way to maintain the real value of something over time by factoring in the potential loss of purchasing power due to inflation.

The concept of indexation originated in the late 19th century when economists and policymakers began to recognize the negative effects of inflation on the purchasing power of individuals and businesses. In 1912, Brazil became the first country to implement an indexed system to adjust the value of wages, pensions, and government bonds.

Since then, indexation has been adopted by many countries worldwide in various forms. For example:

• Wage indexation: Adjusting wages to keep pace with inflation.
• Price indexation: Adjusting prices to account for changes in the cost of production.
• Tax indexation: Adjusting tax brackets and deductions to compensate for inflation.
• Bond indexation: Linking the value of bonds to an inflation index, ensuring that investors maintain the real value of their investments.

Significance

Indexation plays a crucial role in the following areas:

• Protection against inflation: By linking payments or prices to an inflation index, indexation helps to preserve the purchasing power of individuals and businesses over time.
• Economic stability: Indexation can help to moderate economic fluctuations by reducing the impact of inflation on wages and prices.
• Financial planning: Indexed investments and savings instruments provide a hedge against inflation and help individuals plan for the future with greater certainty.

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