Pension expense discount rate and inflation rate

[zxfmontreal]

Schweser book 2 page 121
Reading 20: challenge problems #19 about the defined-benefit pension plan
The answer says: The discount rate is increasing, but the inflation rate is decreasing. There is usually a direct relationship between the discount rate and the infliation rate.
Why?
Normally, when inflation rate increases, employees’ compensation is expected to be increased as well. Similarly, as inflation rate raises, I think the pension expense shall be increased too. Therefore the discount rate should decrease, which means there is an inverse relationship between the discount rate and the inflation rate.

 

[cpk123]

when inflation rate increases - the general interest rate (which is the discount rate) in the environment usually also increases. (That is what they mean).
but potentially you have a situation where the inflation rate is increasing - while the rate at which the employees compensation is discounted to arrive at the PBO liability - is decreasing (which would mean that the PBO liability is INCREASING - when discount rate decreases - the PBO Liability increases). If the discount rate increases in actuality the PBO Liability would decrease - due to the discount rate being on the denominator.