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Contract escalation

Producer Price Index (PPI) data are commonly used in escalating purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an escalation clause that accounts for changes in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. Consumer Price Index (CPI) data can also be used in escalation. For example, the CPI may be used to escalate lease payments or child support payments.

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