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1. GROUP MEMBERS
 Tariq Rahim Reg # 814
 Obaid Ullah Reg # 816
 Omer Ali Reg # 805

2. TARIQ RAHIM
 Reg # 814
 5th Semester
 Section B

3. OMER ALI
 Reg # 805
 5th Semester
 Section B

4. OBAID ULLAH
 Reg # 816
 5th Semester
 Section B

5. INFLATION
Definition
Causes
Measurement
Effects
Inflation in Pakistan

6. Definition
1. An increase in the average level of
prices of goods and services
2. Decrease in Purchasing power.
Inflation is not a reflection of any specific price,
some go up and some go down. E.g, . . . . .

7. WE ALSO HAVE
 Negative Inflation.
 Disinflation.
 Hyper Inflation.

8. NEGATIVE INFLATION
 Definition:
1. A decrease in the average level of
prices of goods and services
2. Increase in Purchasing power.
 It is also called Deflation.
 When the value of inflation goes in negative,
it become deflation or negative Inflation

9. DISINFLATION
 Definition:

–A decrease in the rate of inflation
 Disinflation is the value of decreasing
inflation rate but not in the negative region.

10. HYPER INFLATION
 Definition:
 A rapid and uncontrollable
increase in the rate of inflation is
called Hyper Inflation.

11. HYPER INFLATION
* Hyper Inflation occurred in Germany
during 1922-23.
* Savings became worthless
* Sacks of money required to buy food
* Borrowing ceased – Banking stopped
* Production came to a halt
* Unemployment rose tenfold
* German economy all but collapsed

12. MEASUREMENT
 The rate of inflation is
measured by the annual
percentage change in the level
of prices as measured by the
consumer price index.

13. MEASUREMENT
 CPI
 Item Weight
 CPI: An index of changes in average price of consumer
goods and services.
 CPI= (new price/old price)*10

Item Weight: Percentage of total expenditures
spent on a specific product

14. MEASUREMENT
 Average Inflation Rate.
 General Inflation Rate.
 General Inflation:
_
CPI n =CPI 0 (1 + f ) n ,
1/ n
_
CPI n
f = −1
CPI 0
_
where f = The genreal inflation rate,
CPI n = The consumer price index at the end period n,
CPI 0 = The consumer price index for the base period.
 Average Inflation Rate( f ):
P( 1+ f )N= F

15. CAUSES
There are two types of causes of
Inflation:
 Demand Pull
 Cost Push

16. CAUSES
DEMAND PULL:
Defined as:
- Excess demand pulls up prices
 Often caused by increases in
government spending, such as
wars

17. CAUSES
 Faster rates of economic growth in
other countries

18. CAUSES
 COST PUSH:
Defined as:
-Increase in Costs of Productions i.e raw
Materials
There are two types of cost push
 Wages Push
 Profit Push

19. WAGES PROFIT
 Definition:
-Attempts to increase wages
faster than productivity
 It is often caused by Unions

20. PROFIT PUSH
 Definition:
- Attempts to increase profits by
raising prices
 Mostlylarge corporations are the
cause of profit push

21. EFFECTS
-- Not all prices rise at the same rate
-- Not everyone suffers equally from
inflation
 Borrowers win because the real value
of their loan repayments decreases at the
same rate as inflation rises.
 If their incomes rise as well, they are
double winners.

22. EFFECTS

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