Decades ago, the concept of protecting people’s incomes from the ravages of inflation by indexing to a measure of inflation was born. Social security, many union contracts, and many commercial contracts currently automatically adjust to changes in the Consumer Price Index (CPI) in an attempt to provide that protection.
In this economy, the CPI is down, reflecting that overall price levels are down. As a result, contracts tied to the CPI will not enjoy an “inflation adjustment” increase in 2010. And the uproar about how this harms retirees and workers has already begun.
The CPI adjustments were to protect against inflation, not to guarantee rising incomes. To the degree the CPI is a correct index for protection from inflation, how can anyone claim harm because there will be no automatic raise in 2010? If prices have not risen, there is no need to protect from inflation. Expectations have changed from the original purpose.
Whenever purpose is forgotten, expectations stray.
Reinforce purpose constantly. Monitor stakeholder expectations. Otherwise, the predictable drift will cost a fortune in damage control, inefficiencies, and corrective actions. And possibly in finding a way to meet the expectations that have been allowed to grow.