As inflation expectations rise, the expected real interest rates — the real burden incorporating the price rises — will fall. Let me elaborate on what I mean by this, as it is somewhat difficult to understand. Suppose you borrow money at the rate of 3 percent.
If inflation goes up by 2 percent per year, the value of the money you will pay back will decrease by 2 percent. Thus, even if the nominal interest rate is 3 percent, the real interest rate will become 1 percent, subtracting the rate of inflation (2 percent) from the nominal interest rate (3 percent).