Aaron Vale, managing director, co-head of indirect infrastructure at CBRE Investment Management, discusses the relationship between inflation and infrastructure business, how inflation affects infrastructure benchmarking, how interest rates are affecting inflation and infrastructure investments and what infrastructure sectors and strategies can help protect against inflation. (09/2022)…(read more)

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Aaron Vale, Managing Director of CBRE Global Investors, has spoken recently about the potential impact of interest rates and inflation on investment portfolios. Vale argues that infrastructure assets such as airports, toll roads and utilities can serve as hedges against inflation.

Interest rates and inflation are closely linked. When central banks raise interest rates, it becomes more expensive to borrow money. This can slow down consumer spending and investment, which can lower inflation. Conversely, when interest rates are low, borrowing becomes cheaper and inflation can rise as consumers have more money to spend.

Vale believes that infrastructure assets are well-positioned to benefit from both scenarios. In an environment of rising interest rates, infrastructure assets can provide stable and predictable income streams, which can attract investors seeking stable returns. Conversely, in a low interest rate environment, infrastructure assets can benefit from increased consumer spending due to cheaper borrowing costs.

Inflation is another key factor that can impact investment portfolios. When inflation rises, the value of money decreases. This can erode the value of assets that are denominated in that currency, such as stocks and bonds. However, infrastructure assets can serve as a hedge against inflation because they typically have long-term contracts that are linked to inflation. For example, utility companies may charge higher rates to consumers as inflation rises, which can protect their revenues and profitability.

Vale also notes that infrastructure assets can benefit from government spending on infrastructure projects. As governments invest in infrastructure, it can increase demand for infrastructure assets and drive up their value. Vale points to the US government’s proposed infrastructure bill, which could provide significant investment opportunities for infrastructure investors.

Overall, Vale’s views on interest rates, inflation and infrastructure provide a compelling case for investors to consider infrastructure assets as a potential hedge against inflation. While interest rates and inflation are notoriously difficult to predict, Vale argues that infrastructure assets can provide a stable and predictable source of income and growth, making them an attractive proposition for many investors.