The recent spike in inflation, unprecedented in the history of the Economic and Monetary Union (EMU), has had major consequences across all areas of the economy, including public finances. The unique characteristics of this inflationary episode in the euro area, largely originating from external factors and involving non-standard, ad hoc government spending adjustments, necessitate a careful examination of its effects on fiscal accounts. Drawing on the extensive expertise of the Eurosystem — within the Working Group on Public Finance — this column sheds light on the intricate relationship between price dynamics and budgetary categories. It further estimates that the sizeable inflation surprise in early 2022 has had negative effects on budget balances going forward, challenging the conventional belief so far. The analysis also points to the important role of the denominator effect for debt-to-GDP ratios, which may fall even in the absence of benefits for the budget balance. Finally, a high degree of heterogeneity is documented across countries.[…]