IN THE NAME OF ALLAH THE MOST

BENEFICIENT AND THE MOST

MERCIFUL
 INTRODUCTION
NAME:
MUSTANSER SHAHID
HASSAN FAKHIR
TOPIC:
INFLATION
DATE:
02-08-2010
 CONTENTS
Inflation
Inflation mean’s
Causes of inflation
Types of Inflation
Measurement of inflation
Trend in overall CPI
Inflation trend in Asia
Inflation in Pakistan
Effect of inflation
Economic cost of inflation
Social cost of inflation
Controlling inflation
Conclusion
 INFLATION
Rise in the general level of prices of
goods and services in an economy over
a period of time.
 INFLATION MEAN’S
Inflation means a persistent increase in the
level of consumers prices or a persistent
decline in the purchasing power of money,
caused by an increase
in available currency and credit beyond the
proportion of available goods and services
 CAUSES OF INFLATION
COST –PUSH INFLATION
◦ Cost of production prices
DEMAND-PULL INFLATION
◦ Aggregate demand prices
INCREASE IN MONEY SUPPLY
◦ Rate of interest value of money
CAUSES OF INFLATION
CURRUPTION
Growth in population
Growth in private expenditure
Increase in Export
Money reduction in

direct taxes
 TYPE OF INFLATION
Creeping inflation

Jumping inflation

Core inflation
 TYPE OF INFLATION
Food inflation

Hyper inflation

Stag inflation
 MEASUREMENT OF
INFLATION
by CPI.
Inflation is calculated
◦ Index no=(Px/Po)100
Inflation Rate={CPI(current year)-
CPI(base year)/CPI(base year)}100
Px=price of current
year
Po=price of base
year
INFLATION TREND IN ASIA
 INFLATION IN PAKISTAN
Inflation
rate
Year
(consumer
prices) (%)
2000 6
2001 5.2
2002 4
2003 3.9
2004 2.9
2005 4.8
2006 9.1
2007 7.9
2008 7.6
2009 20.3
 EFFECT OF INFLATION
Inflationary noise
Effect on economic growth
Effect on consumption and economic
welfare
 ECONOMIC COST OF
INFLATION
Economic cost
◦ Unemployment
(long run)
◦ poverty

◦ Cost of production

◦ GDP (if jumping inflation)

 SOCIAL COST OF INFLATION
Crime rate

Depression

Mental diseases

Uncertainty
 CONTROLLING INFLATION

Monetary policy

Fixed exchange rate

Gold standard

Wage and price controls

Cost-of-living allowance
 CONCLUSION
Reduce Expected Inflation
 Improve Policy credibility
 Adopt Inflation targeting

Reduce Inflation
 Improve monetary and fiscal policies
coordination
 Set short term targets
 Inflation and
 Growth
 CONCLUSION
Choice of Appropriate Monetary Policy
Instrument
 Monetary policy instrument
 Intermediate Targets

Fiscal Authorities set target

 Public Debt level
 Budget Deficit
 Bank borrowing

Strengthen regulatory bodies to break

down monopoly elements and other
arrangements hindering prices to adjust
 Any
question???