Glossary
Compounding
Applying this year's escalator to the fee already adjusted by prior years, not forever to the original fee.
Compounding means the base for this year's percent is the fee currently in effect. A 3% escalator on $1,000 becomes $1,030, and the next year 3% applies to $1,030, which is $1,060.90, not $1,060. The nine cents are the point of rounding each step.
Most 'on each anniversary, the then-current fee increases by X%' clauses compound. A clause that always returns to the original fee and the original index is the original-base method and should not be compounded on top.
When invoices were never adjusted, do not multiply the final compounded gap by every historical month and call it damages. Early months may have been correctly billed at the then-correct intermediate price. Show the forward gap. Show a month-by-month reconstruction only when you actually have the invoices.
RateClause's worked examples round half-up to the cent at each anniversary when they illustrate compounding, and they say so next to the trail.
Related terms
See it used in a worked example · CPI calculator · Request an audit
Sources and limits
Index levels from the U.S. Bureau of Labor Statistics Consumer Price Index, not seasonally adjusted, retrieved through the BLS Public Data API on November 1, 2026. Values are index points, not the headline 12-month percent.
Statewide rates reflect U.S. Department of Labor state minimum-wage postings as updated January 1, 2026, the U.S. Department of State Diplomatic Note on 2026 increases, and, for the prior-year comparison and named local rates, the National Employment Law Project compilation published in November 2025. Confirm the rate that applies to the workplace before using it in a bill.
The contracts in these worksheets are fictional. The prices are chosen so the arithmetic is easy to check. They are not a price survey and they are not client results.
RateClause is not a law firm. Nothing on this page is legal advice. Your clause controls, including whether a past period can be rebilled at all.
Primary postings: BLS Consumer Price Index, U.S. Department of Labor, state minimum wages, U.S. Department of State notice of 2026 minimum-wage increases.