How does indexation work on a large scale?

Question

I get that it’s when interest is adjusted to find real revenue rather than nominal revenue, but I don’t quite understand how this functions on a national scale, like when countries index everything and end up exacerbating inflation. Why would this worsen inflation in the first place?

In: Economics

Answer 1

Inflation is an increase in the general price level. If you index the price of something to inflation (like the minimum wage, say), you are increasing the prices because the prices have increased, which is a positive feedback loop.