Indexation is a method used to adjust for the effects of inflation on various economic indicators. It involves linking certain variables or values to an inflation index so that they automatically adjust with changes in the general price level. This helps to maintain the real value of these variables over time and account for the erosion of purchasing power caused by inflation.

One of the main areas in which indexation is used is in wage compensation. By indexing wages to inflation, workers can ensure that their incomes keep pace with the rising cost of living. This helps to protect their purchasing power and maintain a certain standard of living. Indexation of wages can be particularly important in countries with high inflation rates or volatile price levels.

Another area where indexation is commonly used is in the estimation of the nominal GDP (Gross Domestic Product). Nominal GDP is the total value of goods and services produced in an economy, measured at current market prices. However, as prices change over time due to inflation, the nominal GDP figure alone may not provide an accurate representation of economic growth. By applying an indexation method, such as using a GDP deflator, the effects of inflation can be removed, resulting in a more accurate estimation of real GDP.

Indexation is also relevant in the measurement of savings rates. When individuals or households save money, they often do so to preserve their purchasing power for the future. However, if the savings are not adjusted for inflation, their real value may decline over time. By using an indexation method, such as linking savings to an inflation index, the real value of savings can be maintained, ensuring that individuals can preserve their purchasing power.

In conclusion, indexation is a method used to adjust for the effects of inflation. It is associated with various aspects of the economy, including wage compensation, the estimation of nominal GDP, and the measurement of savings rates. By using indexation, individuals and economies can better maintain their purchasing power and account for the impact of inflation.