Pakistan has faced high inflation rates in recent years, averaging 11.6% annually. Inflation is caused by increases in demand, such as rising money supply, and decreases in supply, like slow agricultural growth. While low inflation can stimulate production, high inflation harms Pakistan's economy by reducing purchasing power and living standards. To control inflation, the government needs to reduce corruption and unproductive spending while improving growth, monetary policy, the tax system, and the balance of payments.

1. INFLATION
And its effects on PAKISTAN’S Economy.
Presented by:
Khisal Iftikhar

2. What is INFLATION???
• Inflation is a rise in general level of
prices of goods and services in the
country over a period of time.
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
last year.

3. According to Meyer:
• “An increase in the prices that occurs after full
employment has been attained.”
According to Ackely:
• “A persistent and appreciable rise in the general level or
average of prices.”
According to Crowther:
• “In the state of inflation the prices are rising i. e., the
value of money is falling.”
According to Coulbourn:
• “In inflation, too much money chases too few goods.”

4. 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.

5. Explanation
All above definitions are showing that
inflation is a condition in which prices rise
and money value decreases. Due to
inflation the real value of money i. e., the
purchasing power decreases.

6. Effects of Inflation
Inflation is famous for its negative effects
and destruction.
But
It has some positive aspects as well.

7. Positive Effects
(if inflation rate is 2% to 4%)
• Increase in production due to inflation.
• Increases the employment opportunities in the
country.
• Enhances the process of economic development.
• Increases the economic activities that may cause to
inventions and innovations.
• Profit of the producers also increases when there is
normal inflation.

8. Negative Effects
• It is a huge problem for employees, taking fixed
salaries.
• It generates unfair distribution of income and
wealth.
• Inflation reduces the saving of the population.
• It is a cause of unfavorable balance of trade and
payment.
• Inflation increases the rate of interest.
• It creates a lot of social evils.

9. Negative Effects
• It is difficult for consumers to purchases more
goods.
• It generates very bad effects on the poor
labor force.
• Inflation reduces the living standard and
purchasing power of people.
• It is harmful for creditors.
• Inflation reduces the purchasing power.

10. Types of Inflation
Demand Pull Inflation:
This is demand side inflation. It simply
means that when there is an increase in
aggregate demand. Without any
corresponding increase in aggregate supply
the price level will rise.

11. Types of Inflation
Cost Push Inflation:
It is supply side inflation. If there is increase in prices it will
results in fall in aggregate supply. It is the reason of
increase in cost of production.
Structural Inflation:
Sometimes prices rise in an expanding economy because
the supply cannot keep up with rising demand because of
structural inflexibilities.

12. Types of Inflation
Imported Inflation
Devaluation Inflation
Anticipated Inflation
Unanticipated Inflation
Ex-ante & Ex-post Inflation
Deficit Inflation
Suppressed Inflation
Open Inflation
Income Inflation
Ceiling Inflation

13. DEGREES OF INFLATION:
Moderate Inflation:
• When the rate of inflation is very low, say in the
range of 1% to 20%, it is moderate inflation.
Galloping Inflation:
• When the rate of inflation exceeds 20 % it is
called galloping inflation.
Hyper Inflation:
• If the rate of inflation is above 1000 %, it can be
termed as hyper-inflation.

14. CAUSES OF INFLATION IN PAKISTAN
Increase
in
Demand
Decreas
e in
Supply

15. Increase in Demand
Increase in Money Supply:
The major cause of increase in the price level is an increase in
money supply. It may be due to increase in currency or credit
money. Increase in the stock of money induces people to
demand more and more of goods and services.
Increase in Velocity of Money:
According to the Fisher’s Quantity Theory of Money, if there is
an increase in the velocity of circulation of money it also leads
to inflation.

16. Increase in Demand
Non-productive Expenditures:
Government of Pakistan has to make a lot of non-productive
expenditures like defense etc. Such unproductive expenditures
lead to the wastage of economy’s precious resources and also
lead to inflation
Corruption & Black Money:
Corruption and black money leads to increase in aggregate
demand, which is cause of inflation. These evils increase
aggregate demand and import volume.

17. Increase in Demand
Foreign Remittances:
Increase in foreign remittances is increasing the
money supply in our country. Increase in money
supply leads to inflation.
Foreign Aids:
Foreign aids are also a source of mobilization of
resources form rich countries to poor countries. It is
also a cause of inflation in Pakistan.

18. Increase in Demand
Consumption Trends:
Due to demonstration effect people of our country want to
copy the styles of people of rich countries. In this way there is
an increase in consumption trends that leads to inflation.
Population Bomb:
Population of Pakistan is increasing day by day. Increasing
population is demanding more and it creates inflation.

19. Decrease in Supply
1) Slow Agricultural Development:
Shortage of Productivity
Low Supply
Increase in price level
2) Slow Industrial Growth:
Backward techniques of production

20. Decrease in Supply
3) Increase in Wages & Salaries:
Increase in Cost
Increase in Income
Increase in Prices
Inflation

21. 4) Increase in Prices of Imports:
Increase in the prices of imports also leads to
inflation. If there is an increase in the prices of oil
and other imported raw material then it will cause
to reduction in supply.
5) Devaluation:
The value of our currency is decreased due to
devaluation. It makes imported goods more
expensive and it leads to shortage of supply.

22. Pakistan’s Inflation Rate
(2002-12)
Inflation Rate
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

23. Comparison With Bangladesh
Yearly Inflation Rate
25.00%
INFLATION RATE
20.00%
15.00%
Pakistan
10.00%
Bangladesh
5.00%
0.00%
2002
2003
2004
2005
2006
2007
YEARS
2008
2009
2010
2011
2012

24. Measures to Control Inflation.
• Government should first check the corruption
to eliminate the inflation.
• Increase in the growth rate of output.
• Government should control the supply
of money through effective monetary
policy.

25. • Increasing unproductive expenditures
must be controlled.
• Control on population is also necessary
to control inflation.
• Effective tax system will be helpful to
control the inflation.
• Improvement in balance of payment.

26. Measures to Control Inflation.
• Development of agricultural
and industrial sector.
• Reduction in budget surplus.
• Reduction in monetary
expansion.

27. References
http://finance.gov.pk/survey/chapters_13/07-Inflation.pdf
http://en.wikipedia.org/wiki/Inflation_in_Pakistan
http://en.wikipedia.org/wiki/Inflation
http://ahsankhaneco.blogspot.com/2012/04/inflation-inpakistan-its-types-causes.html
http://finance.gov.pk/survey/chapters_13/executive%20su
mmary.pdf
http://en.wikipedia.org/wiki/Economy_of_Pakistan