Inflation is simply a market condition where plenty money is used to pay for less goods. when there is excess mpney in circulation in the economy, it can lead to inflation. In general, as interest rates are reduced, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase. real interest rates fall as inflation increases. (because there is excess money in the economy, borrowing will not be expensive).