Public debt can impact inflation by creating uncertainty in financial markets and leading to inflationary tactics. It allows governments to repay debt at a negative real interest rate, affecting real wealth and confidence in spending management.
Public debt can have an impact on inflation by creating uncertainty in financial markets, leading a country to resort to inflationary tactics to reduce the real value of outstanding debt. When a government borrows at a fixed interest rate but allows inflation to rise above that rate, it effectively repays debt at a negative real interest rate. This impacts real wealth and damages confidence in the country's ability to manage its spending.