A cost-of-living adjustment (COLA) is a periodic increase in wages, salaries, or benefits that is designed to keep pace with the rising cost of goods and services. This adjustment is typically based on changes in the Consumer Price Index (CPI), which measures the average price of a basket of goods and services commonly purchased by households. COLAs are often used to ensure that employees’ purchasing power remains relatively stable over time, as inflation and other economic factors can cause the cost of living to increase. This term is commonly used in the context of employment contracts, retirement benefits, and government programs such as Social Security. COLAs are typically calculated and applied on an annual basis, but may also occur more frequently depending on the specific agreement or program.
