Initially, higher inflation had a beneficial effect on debt-to-GDP ratios, due to a temporary windfall from the boost in nominal growth (Slide 11, left-hand side). [15]  However, an inflation increase due to a supply-side shock cannot be expected to significantly alleviate the debt burden over the medium term.
ECB staff simulations show that the resulting decline in real growth, higher interest payments and deteriorating primary deficits would increase public debt ratios over longer horizons (Slide 11, right-hand chart). Rising interest rates as a result of tighter monetary policy or higher public debt lift up the interest rategrowth differential for a given rate of potential growth.