cost of living adjustment

A cost of living adjustment (COLA) is a change in income—such as wages, social security benefits, or pensions—designed to keep up with inflation. When prices for goods and services increase, a COLA raises your payments so your purchasing power stays consistent, helping you afford the same standard of living despite rising costs. Conversely, if inflation is low or negative, COLA increases may be smaller or not applied. It's a way to ensure income keeps pace with economic changes, protecting individuals from the diminishing value of money over time.