When inflation occurs, the value of money decreases 

This means that the purchasing power of money decreases, and the same amount of money can buy fewer goods and services than before 

As a result, lenders demand higher interest rates to compensate for the loss of purchasing power of the money they lend out 

The cost of borrowing, therefore, increases during inflationary periods 

This means that individuals and businesses must pay higher interest rates to borrow money from banks or other financial institutions 

This can be particularly problematic for businesses that rely on borrowing to invest in new projects or expand their operations 

Higher borrowing costs can make it more difficult for businesses to obtain the funding they need, leading to a decrease in economic activity 

However, not all borrowing costs are affected equally by inflation