BGN Entrepreneur

Generally speaking, inflation means the rise in the general prices level over time in Economics. The inflation rate refers to the rate of the general price level increase. A 10% inflation rate means overall prices are 10% higher than the level in the previous year.
Interest refers a fee charged for borrowed capital.  It’s the cost of borrowing. A 10% interest rate is the extra amount a borrower needs pay back over a year.
There are many ways to consider the relationships between interest rates and inflation. One of the easiest ways to think about their relationship is as following.
When the economy is dynamic and growing fast, especially when there is little output gap, there will be pressure for higher inflation. For example, when unemployment is low, additional demands for labor will tend to push up the increase in salaries.
Higher interest rates will discourage borrowing and encourage saving and will tend to slow down the economic growth as a result; while lower rates will encourage borrowing and have the opposite consequent effect. As a result, the interest rates are used to keep the strong economic growth generally in line with its long-run trend or so each year.

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