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Writing an escalation contract using the Consumer Price Index

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Writing an escalation contract using the Consumer Price Index, by Malik Crawford and Kenneth J. Stewart, Consumer Price Index program

  • “Each year thousands of people write contracts with escalation clauses that are tied to the Consumer Price Index (CPI). Escalation contracts call for an increase in some type of payment in the event of an increase in prices. These contracts are used in a wide variety of ways, from adjusting rent prices to adding cost-of-living adjustments to alimony payments and wage contracts. Unfortunately, many escalation contracts tied to the CPI are vague. For example, a contract may stipulate that “the Consumer Price Index (CPI)” be used to escalate an apartment rent, but the Bureau of Labor Statistics (BLS) publishes thousands of CPIs each month, so a more carefully worded contract could minimize ambiguity and the likelihood of future disputes. This issue of Beyond the Numbers can help those who use the CPI to write escalation clauses to create a more comprehensive contract.”
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