With larger declines in nominal yields than real yields, estimated breakeven inflation rates – the spread between nominal and inflation-linked bond yields – have declined (Graph 3). (This calculation is complicated somewhat by the relatively lower liquidity in indexed bond markets.) One interpretation of this is that expectations for inflation have fallen considerably.
The sharp decline in oil prices has certainly reduced near-term inflation expectations as most advanced economies are net oil importers. But this would only account for a decline in inflation expectations in the short term. A substantial decline in medium-term inflation expectations is more difficult to explain.