Infrastructure as Hedge against Inflation - Fact or Fantasy?

Infrastructure is regularly considered a natural hedge against inflation due to its monopolistic pricing power, the favorable regulatory regimes, and the limited operating cost exposure. In contrast to this often cited yet not empirically corroborated proposition, the authors find that listed infrastructure hedges inflation just as good (or bad) as other equities. Only portfolios of infrastructure firms with high pricing power exhibit fairly good inflation hedging properties at a five five-year investment horizon, being slightly superior to equities. The analysis provides more robust insights than previous empirical studies, as the authors use a large dataset of 824 infrastructure firms across 46 countries and 37 years, and apply a robust regression methodology correcting for overlapping data as well as spatial correlation.