The World Tied $3.5 Trillion-Plus of Debt to Inflation. The Costs Are Adding Up.

livemint.com:

Governments and companies around the world spent decades loading up on trillions of dollars of debt whose interest costs rise and fall alongside inflation. But what served as cheap funding when prices were stagnant has rapidly become more expensive. The inflation-linked headache echoes the broader challenges arising at the end of more than a decade of global easy money, in which debtors borrowed vast amounts at very low, and sometimes negative, interest rates.

wsj Borrowing costs of all sorts have risen sharply for governments, businesses and consumers, as central banks have raised key interest rates to combat price pressures. Rates have surged on inflation-linked borrowings, but these aren’t the only source of pain. As standard bonds with fixed rates mature, they need to be replaced with more expensive new debt.

Meanwhile, interest rates on loans are often floating, meaning they quickly reflect changes in policy rates. Yields on benchmark 10-year fixed-rate bonds, a proxy for government borrowing costs, have climbed to about 4.3% for the U.K. and 3.9% for the U.S.

Both were below 1% during the pandemic. Governments will pay roughly $2.2 trillion in overall debt interest this year, Fitch Ratings estimates. The U.S.

Treasury’s interest cost grew 25% to $652 billion in the nine months through June. Germany’s debt-servicing bill is expected to soar to 30 billion euros this year, or some $33.2 billion, from €4 billion in 2021. Governments had $3.5 trillion in outstanding inflation-linked debt at the end of 2022, according to the Bank for International Settlements, equivalent to about 11% of their total borrowings.