Why Interest Rates Rise with Inflation Inflation is a symptom of an economy that's growing but also prone to overheating. Central banks have a powerful tool at their disposal to combat inflation: the interest rate.
When inflation rises, it's a signal for central banks to act by raising interest rates to slow down the economy and prevent prices from spiraling further out of control.
Understanding Inflation and Its Impact on Interest Rates Inflation is a rise in the general price level of goods and services over time.