The link between inflation and interest rates is not immediate or simplistic.

There are numerous other factors affecting inflation and prices - pandemic affecting savings and demand patterns, war in Ukraine (gas and fuel prices), supply chain logistics etc.

Inflation impacts will inevitably lag changes to interest rates and it is worth noting many will have benefitted from interest rate rises.

For cars, prices (and costs) are heavily influenced by the rapid transition to EV. It also seems clear that the supply problems which started during the pandemic are being overcome with an increasing number of less popular models being discounted.

You're right that in theory mate, an increase in interest rates should lead to a decrease in borrowing and spending, which could ultimately bring down inflation. However, the real-world economic situation is often much more complex than simple theory would suggest.

In the case of the car market, you make a valid point that the dealers may be simply raising prices to maintain their revenue, despite selling fewer cars due to the higher borrowing costs. Additionally, supply chain disruptions caused by the pandemic have led to a shortage of new cars, which is driving up prices further.

If higher interest rates reduce demand for houses and cars, conventional economic theory (??) suggests that the price will fall. So the total cost of acquisition as a proportion of income may not change.

This is of course rather simplistic:

• 30-35% of properties are significantly mortgaged. The rest are owned outright or with small mortgages. if a mortgage deal comes to an end and the new deal comes with a higher rate, generally folk can't move quickly to a cheaper house
• Food and heating bill inflation is rather different - it affects all who consume. Some are better able to afford increased prices without significant compromise.
• Cars are different. Prices set by manufacturers are influenced by their own objectives (market share, high unit margin, run out model etc) but are ultimately controlled by customer demand.

There is also a reasonably rapid turnover in the car market (unlike houses) where increases in interest rates will push lease costs up. Customers respond fairly rapidly by either reducing demand (forcing lower prices) or specifying cheaper models

It's kinda weird, right? Interest rates are going up, but inflation isn't coming down like we'd expect. In theory, if borrowing gets more expensive, people should have less money to spend, and prices should go down. But that's not really happening in some sectors, like cars.

You're right, with fewer cars in stock, dealers are raising prices to make up for the lower sales, so prices are still going up. On the other hand, house prices have fallen, so it's not the same for everything.

It's a complicated issue, and lots of things can affect the economy and inflation. It'll be interesting to see how things play out and what policymakers do about it.