This background note considers how competition contributes to lower inflation, despite its unsuitability as a short-term anti-inflationary tool. It explains why competition is important for optimal inflation and summarises some of the empirical evidence of this relationship. It then considers how inflation affects competition, for example by creating conditions for firms to coordinate or by increasing the search costs of consumers. It was prepared as a background note for discussions on “Competition and Inflation” taking place at the November 2022 session of the OECD Competition Committee.