By Mike Duncan | October 2026
Protecting CPI-Linked Revenue When Inflation Runs Low
Inflation hedging for infrastructure can look unnecessary when revenue is linked to CPI, and in one direction it is. When inflation runs high, revenue and the regulated asset base rise while the interest bill on fixed-rate debt stays where it is.
The exposure runs the other way. If inflation comes in low, inflation-linked revenue grows more slowly but debt service does not fall with it. Debt service coverage tightens, distributions come under pressure and covenant headroom can shrink, particularly where the debt was locked in during the 2016 to 2021 low-rate years.
A vanilla CPI swap gives up the high-inflation upside in full. An inflation collar, a bought floor paid for by a sold cap, protects the low side and leaves the natural exposure in place in the middle. For illustration, a floor at 2% and a cap at 4%. Settled year by year, it lines up with the annual revenue cycle.
Most of the work is taking the regulator, the auditor, the banks and the board through it, including the collateral that goes out under a CSA when inflation expectations rise, before the higher revenue arrives.
Read the Executive Brief
Inflation Collars in Infrastructure
