What is the impact of inflation on interest rates?

What is the impact of inflation on interest rates?

Inflation typically leads to higher interest rates. When prices rise, lenders want to compensate for the decrease in purchasing power.

Why do lenders increase interest rates when inflation rises?

Lenders increase rates to maintain their profit margins and to offset the risk of losing money due to inflation.

How does this affect borrowers?

Higher interest rates mean that borrowing costs increase, making loans more expensive for consumers and businesses.

Are there any exceptions to this rule?

Yes, sometimes central banks may lower rates to stimulate the economy, even during inflation, depending on economic conditions.

What can individuals do to protect themselves from inflation?

Individuals can consider investing in assets that typically outpace inflation, like stocks or real estate, and review their debt strategies.