If inflation lowers demand, would that not eventually offset inflation naturally without government intervention?
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It could. Inflation raises prices. When prices rise, demand for products tends to decrease. Demand for some products doesn’t change much based on price though, since people need those things to live. Examples of those kinds of things are food or gas. Demand for other products does drop a lot when prices rise. Those things include luxury items or designer clothes. However, even necessary products like gas can be impacted by prices, but usually that’s over a longer timeframe. If gas prices stay high long enough, people might drive less, take public transportation more, or switch to cars that don’t use as much (or any) gas. As that demand reduces, the prices tend to drop. In theory, people could start living entirely on ground wheat and water, move into low cost housing, and ride bikes to work. But dramatic changes in behavior leads to industries that employ a lot of people having to lay people off. And price increases that cause people to struggle paying for necessities can cause civil unrest. So governments try to dampen the impact from inflation, and keep inflation to a much lower level than what is happening currently in the United States. They do this primarily by controlling how much money is flowing through the economy in the form of setting interest rates that banks can borrow at. Raising the rate makes the cost of borrowing money higher, which reduces the amount of money in the market and tends to push prices lower or slow inflation. Lowering interest rates makes borrowing cheaper, increasing the flow of money and pushing prices up.
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