Do the math ...
Readers of the excellent Bearwatch (now sadly in some kind of semi-limbo) will have enjoyed the debate over whether the next economic cycle will be inflationary or deflationary. I tend to expect the former, and the unhappy Mitchells & Butlers saga gives us an interesting market data-point that reinforces this view.
Recall that M&B put on a huge 30-year derivative position to provide an inflation hedge for a putative but ultimately illusory property deal. The strike was 3.1775%, the 'hedge' became stranded, and was finally liquidated when £391 million out-of-the-money last week. M&B had bought the fix, so OTM for them means implied RPI is higher than the strike.
So - do the math, as they say. Principal was £ 240 million and it's an interesting question as to what we assume is the relevant risk-free discount rate: but if we say 5%, doing some simple sums, the implied 30-year RPI is 3.7% ! (it's fairly robust: +/- 50 basis points on the risk-free rate results in only +/- 5 bps on the implied rate)
And 30 years is a long time ! OK Gordon, that's what it costs to hedge out your stable economy these days - where's your economic miracle now ?