FRANKFURT, Feb 13 Reuters Rapid euro zone inflation will weigh on public finances over time, a European Central Bank ECB study showed on Monday, confounding some views that governments might benefit as debt is inflated away and nominal tax revenues rise.

In a more normal bout of inflation and without automatic spending adjustments, the bloc39;s debt ratio would indeed fall, the ECB argued. But the energy shock, the subsequent slowdown in growth, and rigid spending rules mean that governments39; fiscal position is negatively affected already after a year.

In subsequent years, however, spending pressures intensify and more than offset the benefits on the revenue side, leading to nearly 0.5 of GDP deterioration in the budget balance level in 2024, the ECB said in an Economic Bulletin Article.

While inflation normally boosts tax revenue, the energy shock39;s income boost is modest, weighs on corporate profitability, reduces overall growth and puts pressure on nominal public spending.

Moreover, the monetary policy reaction required to avoid this inflation shock leading to undue secondround effects is being translated into an increase in interest payments on government debt, the ECB added.

The ECB has raised interest rates by 3 percentage points since July and markets expect at least another percentage point of increases before rates peak.

About a third of government spending is also indexed, mostly to inflation, so high price growth automatically forces governments…