Little Monsters, Inc., borrowed $1,000,000 for two years from Northern Bank, Inc., at an 11.5% interest rate. The current risk-free rate is 2%, and Little Monsters’ condition warrants a default risk premium of 3% and a liquidity risk premium of 2%. The liquidity premium for a two-year loan is 1%, and inflation is expected to be 3% next year. What does this information imply about the rate of inflation in the second year?