Historically, why were high inflation rates associated with high nominal interest rates? Growth in investment and savings is encouraged when consumers are judged to be overspending. High inflation leads to a decrease in purchasing power and thus increases the attractiveness of investment over consumption in the short term. Individuals will spend more when they expect their investments to increase in value. The real interest rate needs to be high enough so that individuals can expect their savings to have greater purchasing power in the future than in the present