Inflation and Water Utilities

January 18, 2023

Inflation appears likely to persist, which affects everyone’s bottom line. Did you know that water utilities have inflation protected business models? Regulations allow water utilities to raise tariffs, passing through inflationary costs to ratepayers. Earlier this year, water utilities in the UK raised tariffs roughly 7%. In the US, 10%. Brazilian water utilities recently increased tariffs by 15%. 

Water price increases are typically steady and sticky, unlike many other industries where pricing can be volatile. Additionally, governments, agriculture and industry now realize that drought and flood are intensifying due to climate change and are spending more to ensure water quality and water supply reliability. Water spending should continue to increase regardless of GDP and market volatility. For example, the infrastructure act includes tens of billions of dollars that add to the water spending super cycle tailwind driving water industry revenue growth. 

Inflation protection, steady growth, insulated from economic volatility, intensifying drought and flood, and free cash flow generation combine to provide solid investment fundamentals and investment opportunities for water stocks to continue to outperform the broader markets. Contact us today to learn more.