An interest rate swap that pays out if inflation (as measured by percentage increase in a relevant inflation index, such as the CPI) exceeds a predetermined level (threshold) over a specific period of time. The payer of the fixed rate, for a succession of intervals, would receive the inflation rate, and pay a fixed rate on a fixed notional principal. For example, between periods (a) and (b), the inflation rate is: I_ab = (S_b/S_a) -1, where S_b, S_a are the swap payment at the end of each corresponding period.

This swap is also called an inflation-indexed swap or inflation-linked swap.