Jurisdiction(s):
United Kingdom

Key definition

Inflation definition

What does Inflation mean? In legal practice, inflation describes the general rise in prices over time and the corresponding erosion of money’s purchasing power, most often addressed through indexation clauses in contracts (rent review, price adjustment, construction fluctuations), pension revaluation, maintenance and periodical payments, and statutory uprating. It is an economic concept rather than a defined legal term; the law and contracts usually refer to specified price indices. Across England & Wales, Scotland and Northern Ireland, the principal measures are the consumer prices index (cpi) and CPIH (ONS), with the Retail Prices Index (RPI) still used in some legacy leases, bonds and...

UK inflation derivatives: ISDA documentation, product types, collateral and clearing, index disruption fallbacks, LIBOR transition, and RPI reform implications

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

Inflation Derivatives serve as a key risk management tool, enabling participants to hedge effectively against fluctuations in inflation rates. The market is sizeable, well established and dates back to its earliest forms in the early 1980s. In 2014, the International Swaps and Derivatives Association (ISDA) estimated the global non‑cleared inflation derivatives market at around US$3tn. In recent years, pronounced volatility and rising inflation across several major regions, including the UK, have drawn renewed attention to these instruments. This Practice Note summarises:

what inflation derivatives are
who uses inflation derivatives
documentation
product types, and
future developments

What are inflation derivatives?

An inflation derivative is a financial contract used to pass the risk, or the potential benefits, of movements in inflation from one Counterparty to another. These instruments trade both over‑the‑counter (OTC) and on exchanges; this Practice Note focuses on the OTC market. Inflation‑linked payments under an inflation derivative are calculated by reference to an inflation index...

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Nick May , Partner

Herbert Smith Freehills Kramer

Nick is a Partner in the Herbert Smith Freehills finance practice, where he focuses on derivatives and structured finance work. Nick acts for a broad spectrum of clients in the derivatives field, including on both OTC and exchange traded derivatives. His clients in this area include financial institutions, corporates, funds and energy companies. He advises on a broad range of products including commodity (including energy derivatives such as gas, oil and emissions products), interest rate, currency and equity derivatives....

Fabien Carruzzo

Herbert Smith Freehills Kramer

Fabien Carruzzo, Head of Derivatives and Structured Products, US at Herbert Smith Freehills Kramer, counsels asset managers, investment banks, commodity traders and other market participants in the full spectrum of transactional and regulatory derivatives matters.Fabien’s work covers a wide range of equity, credit, currency, commodity, and fixed-income derivatives and bespoke structures, as well as structured financing swaps, repos and other asset-based financing arrangements. Fabien has been recognized by Chambers Global and Chambers USA as one of the leading practitioners in derivatives and structured products.Drawing on his experience advising clients on high-profile financial insolvencies, including Lehman Brothers, Fabien counsels clients in assessing and mitigating the liquidity, credit, insolvency and regulatory risks inherent in trading financial products. He also advises market participants on the implementation of regulatory reforms affecting the derivatives and futures industry globally.Fabien’s work with credit derivatives has involved advising traders on...

Web page updated on 22/05/2026

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