<p>If mortgage payments are included in the basket of goods that are used to calculate inflation, then rising interest rates will increase mortgage payments, causing an increase in inflation in the short term. This happens before any of the disinflationary effects show up in the data.</p>

CC BY-SA 3.0
2016-04-05T18:22:10.483Z
2016-04-05T18:22:10.483Z
410 gone
<p>Businesses have debts or liabilities, interest is an expense that's likely to be passed on to consumers in the form of increased commodity prices.  This will result in inflation in the short term.</p>
<p>Individuals have home loans, personal loans, interest expenses of those will also increase with higher interest rate.</p>

CC BY-SA 4.0
2022-06-19T13:16:29.110Z
2022-06-19T13:16:29.110Z
TelKitty
<p>Raising interest rate from a low level will increase borrowing and spending in light that the economy will raise and thus cause the inflation in short term within a range of seven years. And then when the rates are raised to a level that exceed the tolerance of economic bubble, and demand-supply relation rules in which cause final deflation.  Different factors comes into play at different stages in a cycle: expectation, bubble, tolerance, demand-supply. </p>

CC BY-SA 3.0
2016-04-07T09:56:41.833Z
You might need to explain why raising interest rates will **increase** borrowing
410 gone
CC BY-SA 3.0
2016-04-07T15:53:41.043Z
I think within a range, raising interest rate will imply the rate will continue raise further, so business would rather borrow now than later with higher cost, speculators will borrow now to gain profit from the spread.
xappppp
CC BY-SA 3.0
2016-04-07T03:23:44.750Z
2016-04-07T03:23:44.750Z
xappppp
<p>My understanding of the interest rates part of monetary policy is the follows:</p>

<p>Borrower's point of view:</p>

<p>An increase in interest rates, increases the cost of borrowing, which may reduce disposable income, causing a reductiong in aggregate demand. The equillibrium between supply and demand will therefore need to be adjusted resulting in a lower average prices (less inflation).</p>

<p>Saver's point of view:</p>

<p>As interest rates rise, the reward for saving increases, therefore people are incentivised to save their money, which may cause a decrease in disposable income and less inflation.</p>

<p>However, I have a question in my textbook which says how can a rise in interest rates cause higher inflation in the short term, and I'm not sure.</p>

<macroeconomics><monetary-policy><inflation><interest-rate>
Monetary Policy - How can increasing interest rates cause higher inflation in the short term?
user35399
# Monetary Policy - How can increasing interest rates cause higher inflation in the short term?

(Asked by: username_0 on 2016-04-05)

My understanding of the interest rates part of monetary policy is the follows:

Borrower's point of view:

An increase in interest rates, increases the cost of borrowing, which may reduce disposable income, causing a reductiong in aggregate demand. The equillibrium between supply and demand will therefore need to be adjusted resulting in a lower average prices (less inflation).

Saver's point of view:

As interest rates rise, the reward for saving increases, therefore people are incentivised to save their money, which may cause a decrease in disposable income and less inflation.

However, I have a question in my textbook which says how can a rise in interest rates cause higher inflation in the short term, and I'm not sure.

**Tags:** macroeconomics, monetary-policy, inflation, interest-rate

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## 3 answers

### Answer by username_1 on 2016-04-05. Score: 2

If mortgage payments are included in the basket of goods that are used to calculate inflation, then rising interest rates will increase mortgage payments, causing an increase in inflation in the short term. This happens before any of the disinflationary effects show up in the data.


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### Answer by username_2 on 2022-06-19. Score: 0

Businesses have debts or liabilities, interest is an expense that's likely to be passed on to consumers in the form of increased commodity prices. This will result in inflation in the short term.

Individuals have home loans, personal loans, interest expenses of those will also increase with higher interest rate.


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### Answer by username_3 on 2016-04-07. Score: -1

Raising interest rate from a low level will increase borrowing and spending in light that the economy will raise and thus cause the inflation in short term within a range of seven years. And then when the rates are raised to a level that exceed the tolerance of economic bubble, and demand-supply relation rules in which cause final deflation. Different factors comes into play at different stages in a cycle: expectation, bubble, tolerance, demand-supply.

> **Comments:**
> **username_1**: You might need to explain why raising interest rates will **increase** borrowing  
> **username_3**: I think within a range, raising interest rate will imply the rate will continue raise further, so business would rather borrow now than later with higher cost, speculators will borrow now to gain profit from the spread.  

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