According to Don Yacktman, historically we have averaged 3% inflation with the last 50 years averaging 4%.
Whichever number you use, it is dangerous to project inflation rates below those long term numbers.
Long term bonds have had a tendency to sell at a 3% premium to inflation and equities another 3% higher than that.
The bottom line is that it is dangerous to value equities and bonds based on recent interest rates because when everything reverts to historical levels valuations on equities and bonds will compress.
