Inflation is defined as a persistent increase in the general price level over time. It is caused by demand-pull factors like increased money supply or cost-push factors like higher production costs. Consequences of inflation include a decrease in purchasing power, inequality in income distribution, and negative impacts on exports and government spending. High inflation over 50% per month is considered hyperinflation and can lead to drastic increases in prices over time. Pakistan experiences inflation due to factors like increased money supply, non-productive expenditures, and foreign remittances. It is advised to invest in long-term assets rather than cash during inflation.
3. INFLATION
“Inflation is the persistent increase in general
price level”
Decrease in the purchasing price of money
General increase in the price of goods and
services in an economy
4. INFLATION RATE
• Inflation rate is the percentage
increase of decrease in prices
during a specific period,
usually a month or period.
• It analyze the general price
level in percentage
Rate =
CPI 2 – CPI 1
CPI 1
X 100
5. CAUSES OF INFLATION
DEMAND PULL INFLATION:
its also called Price inflation.
When Aggregate demand
become more than Aggregate
supply in the economy.
Cut in interest rate
Higher wages
Increased money supply
Demand pull inflation
6. CAUSES OF INFLATION
Cost push inflation
COST PUSH INFLATION/ Wage push inflation
When aggregate demand is same and there
is increase in cost of factors of production
and decrease supply of goods in the
economy.
Increase in Cost of production or wages
Increase in prices of goods
higher indirect taxes
7. OTHER CAUSES OF INFLATION
Increase in public spending
Population growth
Trade unions
Imposition of indirect taxes
Price rise in international market
Government spending
8. Favorable impacts of inflation
Higher profits
Better investment returns
Increase in production
Better income
9. Unfavorable impacts of inflation
Low purchasing power
Inequality in income distribution
Upsets the planning process
Lenders face losses
Negative impacts on exports income
14. HYPERINFLATION
• Hyperinflation is often defined as inflation that exceeds 50 percent
per month, which is just over 1 percent per day.
• Compounded over many months, this rate of inflation leads to very
large increases in the price level.
• An inflation rate of 50% per month implies a more than 100-fold
increase in the price level over a year and a more than 2-million-fold
increase over three years.
15. Inflationary factors in Pakistan
Increase in money supply
Non productive expenditure
Corruption and black money
Deficit financing
Foreign remittances
Foreign Aids
16. Be wise when holding cash
Invest in things that will serve you in
long time
Be careful, when buying bonds
Allocate your resources
17. Domestic production should be
encouraged
Development in various sectors
Decrease unnecessary spending's
Better strategic planning
Allocation of resources