Inflation , Its Effects , And

Their Remedies.

Mumtaz Ali Panhwar12ME69

• Introduction

• Definitions

• Types of Inflation

• Causes Of Inflation

• Effects Of Inflation

• Remedies to control Inflation

• References

INFLATION

•Inflation is defined as a sustained

increase in the price level or a fall

in the value of money.

•Inflation is a rise in general level

of prices of goods and services in

the country over a period of time.

• In a broad sense , inflation is that state in which the prices of goods and services rise on the one hand and value of the money falls on the other .

•As the cost of goods and services increase , the value of a currency declines because you won’t be able to purchase as much with that currency as you could have last month or year.

Definition of Inflation according to few Economists.

MEYER:“ An increase in the prices that

occurs after full employment has beenattained.”

CROWTHER:“ In the state of inflation, the prices

are rising , i.e., the value of money isfalling.”

Coulburn:“ In inflation , too much

money chases too few goods.”

Explanation of above definitions of Inflation.

All the above definitions areshowing that inflation is a continuousprocess and they also show thatinflation is a condition in which pricesrise and money value decreases.

Due to inflation , the real value ofmoney decreases , i.e., the purchasingpower decreases

Other Terms Related To Inflation

Dis-inflation:

The reduction of rate of inflation is termed as

Disinflation.

Stagflation:

High inflation combined with economic stagnation and unemployment.

Hyperinflation:

An out of control inflationary spiral is known

as Hyperinflation.

DISINFLATION STAGFLATION

HYPERINFLATION

Types Of Inflation

1. Demand Pull Inflation

2. Cost Push Inflation

Demand Pull Inflation

•The demand for goods and services increases

and production remains same or does not

increase as fast.

•The excess demand results in prices being

pulled up.

•The demand pull inflation occurs

when total demand for goods and

services exceeds the total supply.

•This type of inflation happens when

there is an inflationary gap.

Demand Pull Inflation

Cost Push Inflation

• The cost push inflation is

caused by an increase in

the cost of production.

• Increased costs push up

the price level.

Causes of Inflation:

•Population explosion.

•Political Instability.

•Imported goods.

•Increase in wages and

salaries.

•Climatic factors.

Causes of Inflation:

• Oil prices.

• Corruption.

• Slow agricultural

development

• Slow Industrial growth.

Effects Of Inflation:

• Un employment • Decreasing the purchasing power• Decrease in stock.• Exports decline.• Breakdown of monetary system.• Investment fall.

Remedies to control Inflation:

Inflation rate is increasing day by day. Following are the some remedies to control this problem…

1. Increase the supply of essential items .

2. Tight monetary policy.

3. Reduce government expenditures……

Remedies to control Inflation:

4. Reduce public borrowing by government.

5. Control deficit financing .

6. Provision of subsidies.

7. Explore new energy resources .

such as : solar energy , wind energy, and

construction of new dams, etc…

8. Population control

Remedies to control Inflation:

Measures to control Inflation:

There are broadly three ways of controlling inflation in an economy.

1. Monetary Measures.

2. Fiscal Measures.

3. Direct or Other Measures.

1. Monetary Measures.

• Most central banks use high interest rates

as the traditional way to fight or prevent

inflation.

• Decrease money supply.

• Decrease availability of credit from banks.

• Decrease currency control.

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary policy is adopted by central bank of a country.

2. Fiscal Measures.

Fiscal policy is the deliberate

change in either government

spending or taxes, to simulate

or slow down the economy.

• Increase direct taxes.

• Increase indirect taxes.

• Reduce government spending .

• Increase in savings

• Surplus budgets

3. Direct or Other measures.

It means the step of government like rationing of goods and freezing of prices and wages. The government can also increase voluntary savings of people by giving them various incentives.

• To Increase Production• Rational Wage Policy• Price Control• Control of smuggling• Industrial peace• Control of money supply• No deficit financing• Population control• Simple living

Situation in Pakistan:

Today, inflation is one of the serious

problems faced by Pakistan. Rate of

inflation in Pakistan is very high.

According to economic survey 2009-

10, its rate is 13.3 %, According to ESP

2011-12, rate of inflation (CPI) is

10.8%.

Pakistan has an average of 11.6% inflation per year.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Inflation Rate

Pakistan’s Inflation Rate(2002-12)

Comparison of Pakistan’s inflation rate With Bangladesh’s Inflation rate.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

INFL

ATI

ON

RA

TE

YEARS

Yearly Inflation Rate

Pakistan

Bangladesh

References

http://en.wikipedia.org/wiki/Inflation

http://ahsankhaneco.blogspot.com/2012/04/inflation-in-

pakistan-its-types-causes.html

http://en.wikipedia.org/wiki/Economy_of_Pakistan

http://en.wikipedia.org/wiki/Inflation_in_Pakistan

http://finance.gov.pk/survey/chapters_13/07-Inflation.pdf

http://finance.gov.pk/survey/chapters_13/executive%20su

mmary.pdf

The 'cost of living', more than moneyThe price of death much too highGive me a coffin, cheap & funny,I'll blow it up with a sigh!

By: David Stewart