👨‍🎓 The relationship between interest rates and inflation

**14/52** Macro Mornings Education

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👨‍🎓 This is part of a 52-week series on macroeconomics designed to build your knowledge step by step. Feel free to catch up on previous emails here if you'd like to start from the beginning!

Dear all,

In our last email, we discussed how central banks use interest rates to control inflation and stimulate economic growth. Today, let’s dive deeper into the relationship between interest rates and inflation and how it affects your financial decisions.

The connection between interest rates and inflation is fundamental to understanding the broader economy. Here’s how they interact:

1.     Higher Interest Rates Reduce Inflation: As we discussed earlier, when central banks raise interest rates, it becomes more expensive to borrow money. This discourages consumer spending and business investment, which reduces demand for goods and services. With lower demand, the upward pressure on prices eases, helping to bring down inflation.

For example, if you’re considerin…