One benefit of the current rise in inflation, at least for governments, is that it is eroding the real value of public sector debt. But this will reverse only a small part of the pandemic-related rise in government debt ratios in DMs. And the impact on government borrowing is less helpful; indeed, higher inflation will have an increasingly adverse impact on governments’ debt servicing costs as interest rates and bond yields rise. In view of the subject relevance, we are also sending this Global Economics Update to clients of The Long Run. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.
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