Indexation clauses are common in wage contracts, yet they vary across macroeconomic environments. I develop a model in which unions optimally choose the degree of wage indexation in the presence of aggregate demand and supply uncertainty. Linking wages to the Consumer Price Index balances workers’ exposure to ex-post income and substitution effects. In equilibrium, nominal wages rise less than inflation. The degree of indexation declines as supply shocks dominate demand shocks, which manifests as a flattening of the Phillips curve.