UK Accounting Glossary
COLA, or cost-of-living adjustment, is an act of adjusting wages to create economic balance for the changes in the cost of living. A COLA is measured by the Consumer Price Index (CPI or cost-of-living index), which calculates the changes in consumer prices. A COLA takes into account many components, such as the cost of transportation, housing, and utilities. One of the main benefits of a COLA is that it affects millions of people by providing safeguards against inflation and reduced purchasing power. Thus, a COLA is a key bargaining issue in labour and pension contracts, as well as Social Security payments. Since many of these contracts are tied to the changes in consumer prices, a COLA is a highly political issue.
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This glossary post was last updated: 4th February 2020.