Inflation its Kinds, Causes, Rates & Remedies In Pakistan.

2. INFLATION, ITS KINDS,
CAUSES,
RATE & REMEDIES
BY:
AWAIS ALI LAKHO
BUSINESS ADMINISTRATION
SHAH ABDUL LATIF UNIVERSITY
KHAIRPUR

3. What is Inflation?
• Inflation is a sustained increase in general price level of goods
and services in an economy over a period of time and the
currency of a country loosing its value.
• Inflation is an increase in the overall level of prices.
• Inflation is not an increase in the price of a specific good or
service relative to the prices of other goods and services.

4. KINDS OF INFLATION
There are three basic kinds of inflation:
1. Demand pull inflation.
2. Cost push inflation.
3. Hyperinflation.

5. Demand pull inflation.
 Demand Pull Inflation—When aggregate demand
increases faster than the economy can produce the
goods.
 The demand increases and “pulls” along higher prices
because demand is increasing faster than supply! (More
people are chasing the same amount of goods; therefore
people can charge more for their goods).

6. Cost push inflation.
• Cost Push Inflation—When producers raises the
prices to cover higher resources costs.
– Producers must raise prices in order to cover their higher
costs.
– If they do not do this, then their profits are reduced or even
eliminated!
– Must be careful not to raise prices too high.

7. Hyperinflation
• Hyperinflation—is the worst kind of inflation; it is a
situation where inflation is increasing at a rate of
several hundred % per year.

8. CAUSES OF INFLATION
1. Population explosion.
2. Political instability.
3. Nationalization.
4. Increase in wages.
5. Oil crises.
6. Imported inflation.
7. Artificial scarcity of goods.
8. Growth of money supply.

9. Growth of the Money Supply
• As more rupees enter the money supply in Pakistan the
value of that rupee or it’s purchasing power (the
amount it can buy) is less. So to keep prices “stable”,
the money supply should increase at the same rate as
the economy is growing.

10. Key point
• In Pakistan there is other
main cause of inflation is
marshal law or dictatorship
because there is no any
political stability and thirty
six years dictatorship ruled
in Pakistan through marshal
law and emergency that
reduces or damaged the
economy of country.

11. Measuring Inflation
• The Consumer Price Index (CPI) is the official measure of
inflation.
• The CPI can be thought of as an imaginary ‘basket’ of
selected goods and services bought by a typical capital city
household.
• Inflation measuring formula:
• (CPI year A – CPI year B) x 100= Inflation rate
CPI year B
For example:
Inflation Rate= 145 – 140 x 100 = 3.57
140
Inflation Rate 3.57%

12. Inflation rate in Pakistan

13. REMEDIES OF INFLATION
1. Monitory policy.
2. Fiscal policy.
3. Direct measure.
4. Control of smuggling.
5. Increase in output.
6. Population control.
7. Simple living.