> If you are a business and need to borrow money to fund production or expansion, it costs a lot more to borrow that money than it did two years ago. Yes, and

> If you are a business and need to borrow money to fund production or expansion, it costs a lot more to borrow that money than it did two years ago. Yes, and so the hurdle rate to break even is that much higher, a higher needed-ROI discourages economic activity as it is much harder to get that ROI, and slower economic activity will hopefully reduce inflation. > That means your cost of production is higher and you will seek to raise prices. Or discourage you from expanding, which can have knock-on effects of slower economic activity (hiring fewer works so less competition on labour wages, building few plants so not spending on construction, etc). Business do not expand for the sake of expanding regardless of external factors: they expand to increase revenues on which they earn a profit on. If the cost of expansion is high(er), and so a larger margin is needed, then the business may forgo expansion if they can't get that margin. If you know can sell something for 10% over the raw material cost, and your production costs add 5%, then the cost of capital being 2% or 6% is the different between a 3% profit or a 1% loss.