TER, page-230

The real rate in Europe is now circa ‐8.6 percent with neutral sitting around 2.5 percent real, a near 10 percent gap. The assumption underpinning neutral rates is that a tightening of policy will have an elastic response with inflation albeit this is in a normalised economy, far from where we are today. The supply side of the inflation ledger is still a long way from finding a market‐clearing level with this tension formulating in higher longer‐run inflation expectations. Anticipatory inflation is now seeping into wage negotiations and will result in higher actual nominal wages over the next 12‐24 months.

Either prices for commodities will have to go a lot higher or the real cost of money i.e. interest rates will have to increase a lot to shift the thinking here. It appears the most likely outcome is a combination of the two. This is very much a supra secular thematic and will play out over the decade, if not longer.