Some government bonds (called TIPS) compensate the lender for changes in the CPI. For instance, if you lend $100 to the government, and the CPI goes up by 3% when it is time to repay, you will be paid $103 (a falling CPI has the reverse effects, within certain ranges).
If a TIPS bond has a yield of 2% and inflation is expected to be 1% a year, we would expect people to want at least 3% (2% + 1%) yield on a regular (non-TIPS) government bond.
In other words, the difference between the yield on TIPS and the yield on regular government bonds
is the "implied" rate of inflation (i.e., the rate assumed by a decision-maker who considers both types of bonds and is open to buying either). Of course, market actors are simply making their best guesses; in retrospect, the assumption may prove to be wrong.
This chart shows the yields for (5-year constant maturity) TIPS (red) and Treasuries (blue).
The next chart shows the spread between the two, which is the "implicit" annual CPI, given a 5-year
In the midst of the recent recession, fears of deflation took this particular implied CPI rate negative: to -1.5% per annum.
Now, it is back in positive territory, but lower than in the few years before the recession. Right now, these two yields are "implying" that CPI will rise about 1.5% per year for the next five years.