Q: How are the governments worldwide tackling inflation?
A: By increasing interest rates.
Q: How does increase in interest rates lead to reduction in inflation?
A: Inflation mean high price. To reduce high price, demand needs to be reduced or consumerism needs to be reduced.
Increase in interest rates reduces the flow of money. The reduction in the flow of money decreases consumerism. When there is less demand, the price decreases.
Q: Why does the reduction in interest rates decrease the flow the money?
A: If the consumer is getting more interest from bank for savings or fixed deposits, he/she is reluctant to withdraw the money.
Also if one has to pay high rate of interest to borrow, it is better to avoid taking loan.