Taking shelter from inflation

Inflation is a hot topic at the moment. Fiscal and monetary stimulus is pushing inflation expectations to highs not seen for almost two decades. Given the historical association of infrastructure as a hedge against inflation, it is natural for infrastructure to come to the fore at this time also. This brings up the obvious question: can the assumption of the linkage between infrastructure and inflation be proved?

Statistically, this is difficult for any asset class, including infrastructure, given the complexities including the forward-looking nature of markets and multiple factors impacting prices combined with how inflation expectations interact with those factors. But with our bottom-up approach, we are able to establish the link between the asset and inflation, one by one. We’re then able to draw conclusions about which infrastructure assets have a stronger link than others.

In this paper, entitled Taking Shelter from Inflation: Deconstructing the Implications of Inflation for Listed Infrastructure, we look at:

• where the inflation link manifests itself such as through commercial frameworks that allow the ability to pass through changes in cost structure
• key drivers of inflation sensitivity and why capital financing makes a difference
• case studies of four infrastructure assets and the different ways they pass through inflation
• infrastructure as a yielding asset class – the stability of income over time and that income’s resilience to long-term inflation.