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It doesn’t decrease the absolute value of the debt, but it does decrease the relative value of the debt.
Let’s say that you pay $1,000 per month for your mortgage, and you have a monthly salary of $6,000 after taxes. Your mortgage payment is 1/6th if your monthly income.
Now, let’s say that 5 years pass. There has been some inflation, and you’ve gotten cost of living raises to keep up with that. You now make $8,000 per month after taxes. Your mortgage payment is still $1,000, though, so while the hard dollar value is the same it is now only 1/8th your income.
Same thing goes with countries and their debt. The tax base will increase during inflationary times, meaning that tax revenues will also increase. However, the debt instruments issued in the past still have the same payout schedule, so a smaller % of tax revenues will go towards the debt (assuming no new debt is issued).
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