How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask PDtax Your Own Question
Category: Finance
Satisfied Customers: 4506
Experience:  Tax professional and business consultant for 35 years.
Type Your Finance Question Here...
PDtax is online now
A new question is answered every 9 seconds

Are inflation rates affected by gher interest rates?

Customer Question

are inflation rates affected by higher interest rates?
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.

Hi from Just Answer. I'm PDtax, and can assist.

Expert:  PDtax replied 1 year ago.

If you start with the notion that inflation is a period of prices rising faster than incomes, then rising interest rates will slow down the economic activity (which will slow down inflation).

Expert:  PDtax replied 1 year ago.

When demand for a good exceeds supply, the price of the good will rise. Users or consumers will pay more for the good, driving price inflation. People who need to borrow money to purchase that good shall, until the cost of borrowed money goes up to a point that the purchase is less desirable. Think residential home purchases.

Expert:  PDtax replied 1 year ago.

An increase in the cost of money decreases the real value of the house being purchased. While the typical limit is felt at the bank, when income has not increased, but the house price and the cost of money both have. Price inflation will start to slow, since there will be less buyers chasing that and other homes.

Expert:  PDtax replied 1 year ago.

Central banks (the US Fed and others) have long used interest rate tools to manage inflation. The quantitative easing program in the US was designed to stimulate demand, until price inflation exceeded Fed targets.

If rates are raised, even a bit, starting tomorrow, stock market prices are likely to decline, as is demand for borrowed money (it will be more expensive). In this indirect way, interest rates affect inflation.

Thanks for asking at Just Answer. Positive feedback is appreciated. I'm PDtax.