With the return of inflation, debates about public finances have come back down to earth. Such discussions must now deal with the most basic material level — meaning the incomes distributed through the state budget. The question is no longer about the theoretical positive or negative aspects of debt stocks and ratios, per se, but of the kind of protections from which some social categories benefit to the detriment of others. Where does the cost of inflation fall? Who will be hit?

Public finances are organized in such a manner that inflation strikes in a socially differential way. Certain social groups’ revenues are immune to this potential depreciation. But there is also conflict. The savings that investors and financiers place in sovereign securities, by subscribing to Treasury bonds, are exposed to a loss of value. Conversely, wage earners — whose income does not follow the evolution of the price index, or catches up only with a fatal delay — will suffer the consequences of inflation. Marxist economist James O’Connor has spoken of how “the class struggle had (partly) shifted to the State and its budget.”

Ten percent of debt in France (government bonds known as OATi), and 25 percent in the United Kingdom (through inflation-indexed gilts, or more simply linkers), is indexed to inflation. This kind of government-issued bond allows investors to protect themselves against the risk of a rise in the inflation rate — a bondholder’s greatest fear. In exchange for this protection, investors accept a lower base interest rate, which in turn reduces the state’s financing cost. Provided that price stability is maintained, this offers what neoclassical macroeconomist Robert Barro calls a “win-win” strategy.