What effect does inflation have on interest rates and why?

Inflation and interest rates are inversely related. All other things being equal, high inflation correlates to lower interest rates and low inflation correlates to higher interest rates.

Central banks typically set and use the interest rates in response to inflationary pressures. If inflation rises too high, it is typical for banks to increase interest rates in order to lessen overall spending and decrease inflation. Conversely, if inflation is low enough to create a stagnant market, then decreasing interest rates will increase consumption and boost inflation in response.