Well, surprising to perhaps Paul Krugman and maybe Martin Wolf, but not yours truly, the RBA, Bill Gross or Alan Mitchell (quoted herewith in the AFR):
"One reason central bankers with short-term interest rates already close to zero might be attracted to the idea of an inflation surprise is that a temporary increase in inflation could boost the power of monetary policy by driving down real interest rates.
Kenneth Rogoff, a former chief economist at the International Monetary Fund, regards the use of inflation to chisel bondholders as a serious option in the US, perhaps because foreigners now hold half the federal government’s debt.
The scope for using inflation is limited. The average maturity of US government debt has fallen over the years and, if inflation goes up, people will demand higher interest rates on any new bond issues.
Nevertheless, “accidentally” allowing the inflation genie to escape temporarily from its bottle could help reduce the public debt burden. American economists have estimated that moderate inflation of 6 per cent could cut the US debt-to-GDP ratio by a fifth in four years. For an administration struggling to build support for fiscal consolidation, inflation could be a tempting if dangerous option."
