It creates new Hive in the virtual supply. The initial inflation expected this, it started at 10% interest in 2016.

Whether or not it actually creates inflation depends on how it affects HBD conversion - which is by far the largest source of excess inflation in Hive. If it reduces HBD conversion at low Hive prices it may actually reduce inflation overall.

@demotruk/inflation-in-hive-and-steem-why-it-is-higher-than-people-say-it-is