Inflation is back in the headlines—and so is the pressure on treasury teams to protect company value. But here’s the provocative question: Should corporate treasury even try to hedge inflation? Or is it a costly distraction that’s outside treasury’s control and best left to pricing, procurement, and operations?
The Case for Treasury Getting Involved in Inflation Hedging
- Preserving Purchasing Power
- Treasury has a direct role in managing cash and investments. Allocating cash to inflation-linked assets or adjusting yield strategies can help preserve purchasing power.
- Debt and Interest Rate Exposure
- Inflation drives interest rate increases. Treasury must assess the impact on floating-rate debt, refinancing strategies, and interest rate hedging.
- FX Pass-Through Effects
- Inflation in one region can cause currency depreciation, impacting multinational exposures. Treasury is already managing this risk and can incorporate inflation-related FX dynamics.
- Investor and Board Expectations
- Treasury is often expected to present a coherent strategy for financial risk management—including inflation—even if the tools are imperfect.
The Case Against Treasury Owning Inflation Hedging
- Limited Direct Tools
- Treasury doesn’t control pricing, wages, or supplier contracts—so its ability to hedge real inflation impact on operations is marginal at best.
- Hedging Instruments Are Imperfect or Costly
- Inflation swaps, TIPS, and CPI-linked derivatives are complex, illiquid, and may not align well with corporate exposures.
- Better Managed Elsewhere
- Procurement teams can negotiate inflation clauses with suppliers. Pricing teams can adjust sales strategy. Treasury’s role may be more about coordination than execution.
- Risk of Over-Engineering
- Attempting to hedge something as broad and macroeconomic as inflation can lead to unnecessary complexity and cost without meaningful results.
A Coordinated Approach
Rather than owning inflation hedging outright, treasury teams can:
- Model financial exposure to inflation scenarios and feed insights to commercial, procurement, and FP&A teams.
- Optimize interest rate hedging and investment strategies in inflationary environments.
- Serve as a strategic advisor on risk management, helping the business understand how inflation affects capital costs, liquidity, and cash flow.
Let’s Discuss
- Should treasury be directly involved in hedging inflation? Or is that beyond the function’s scope?
- What tools—if any—has your team used to mitigate inflation-related risks?
- Is the pressure to “hedge inflation” realistic, or is it a case of treasury being pulled into macro issues it can’t control?
We’ll feature perspectives from treasurers and risk experts—join the conversation and share your thoughts!
COMMENTS
Johann Isturiz Acev, Treasury Masterminds Board Member, comments:
A shared model between Treasury and other internal areas look like most convenient. We see treasury sharing historical data and market products and procurement/commercial team finding a common sense to protect margin and avoid P&L swings. So, a case by case and country/market analysis have to be done in each transaction to measure the risk and impacts.
Patrick Kunz, Treasury Masterminds Founder and Board Member, comments:
The article makes inflation sound like a bad thing. Which it CAN be, rising costs or indirect adverse effects on exchange rates or interest rates. But it can also be good. IF you can increase your prices with inflation the companies revenue will increase, even if costs also increase as revenue should be the higher compared to cost so inflation makes this go up faster. When debt stays the same your relative debt position will decrease, without much effort.
So much for a perfect world where you can 1on1 increase your prices with inflation, without unhappy clients.
Can treasurers directly hedge inflation ? It is possible with slightly more complex derivatives. Will they be effective ? never 100% as the treasurer will never fully know its exact exposure on inflation.
So do nothing? No, we can (and should) hedge the inflation proxies: interest rates and FX. We can much better determine the exposure on IR and FX. We therefore can decide on a risk appetite and how much to hedge (or not to hedge).
I also like the inflation protection clauses, both on the procurement and the sales side. These can protect your COGS or your sales by limiting the inflation impact. Limiting, never fully mitigating. As with hedging where one party wins the other loses in these clauses. Fairness rules. But for these clauses treasury would not be in the lead but can act as advisor to the procurement and sales teams, if they are willing to listen.
By all means challenge me on this views, would love a discussion on this topic.
Also Read
- Treasury Contrarian View: FX Policy — Too Rigid, Too Static?
- Treasury Contrarian View: APIs in Treasury — Game-Changer or Just Another Integration Headache?
- Treasury Contrarian View: Should Treasury Really Own Working Capital Optimisation?
- Treasury Contrarian View: Do We Focus Too Much on Finance Backgrounds in Treasury Hiring?
- Treasury Contrarian View: Real-Time Payments — Do We Really Need Them in Treasury?
- Treasury Contrarian View: Treasury Dashboards — Are We Tracking the Wrong Metrics?
- Treasury Contrarian View: Are Treasurers Too Conservative with Cash?
- Treasury Contrarian View: Will AI Replace Treasury Analysts?
- Treasury Contrarian View: Payments in Crypto—A Treasury Reality or Just Noise?
Join our Treasury Community
Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information.