Eli5, Why do people raise prices during inflation?

Question

Doesn’t that make inflation worse?

In: 0

Answer 1

Inflation is when the supply of money is greater than the supply of goods. Since there is more money in circulation, there is greater demand for goods. Higher demand for goods results in higher prices. Raising interest rates is an effort to reduce borrowing. This reduces the money supply, which will then better match demand for goods. Fixing supply chain issues also makes goods more available to better match demand.