Much of this is due, of course, to the more competitive nature of markets and the activities of the competition authorities, but the low inflation environment is also an important factor. Perhaps the group who devotes most effort to anticipating inflation trends is professional investors in the bond market. Nominal bond rates are usually thought to embody an allowance for future inflation.
The difference between the indexed bond yield – a real yield – and the conventional bond yield is a measure of the average rate of inflation anticipated over the life of the bond plus, probably, a premium for the variability of inflation. Initially, markets were sceptical that we would keep inflation to the targeted rate.