How does an increase in the inflation rate typically affect real interest rates when considering monetary policy responses?

When inflation rises, it means that prices for goods and services are increasing, which can erode the purchasing power of money. Central banks, like the Federal Reserve, often respond to higher inflation by increasing interest rates to try to control it. This means that the nominal interest rates, which are the stated rates without adjusting for inflation, go up. However, real interest rates, which are adjusted for inflation, may not rise as much or could even fall if inflation increases faster than the nominal rates. For example, if the nominal interest rate is 5% but inflation jumps to 6%, the real interest rate becomes negative at -1%, meaning that people lose money in terms of purchasing power.