Inflation by Yasir Gondal

InflationPresented By

Yasir Raza Adnan Ahmad Sheikh Nisar SarwarAmir Ahsan Fahim Ud Din

Contents : A Glimpse …

• Meaning & Definitions (Yasir Raza)

• Types of Inflation

• How to measure Inflation (Adnan Ahmad)

• Causes of Inflation (Nisar Sarwar)

• Control Measures (Amir Ahsan)

• Effects & Consequences of Inflation (Fahim )

What is Inflation?Meaning :

Simply when demand is more than the supply that may lead to inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Definitions :

“Inflation is nothing more than a sharp upward rise in price level.”

“Inflation is a state in which the value of money is falling i.e. price are rising.”

Types of Inflation

Creeping Inflation (Increases Gradually )

Walking Inflation (Moderate Rise …Up to 4-7% )

Running Inflation (Rapid Acceleration… 10-20%)

Galloping Inflation (Double or Triple Rise in Price)

World Wide Inflation Phenomenon

Inflation Trend

How We Measure Inflation?

Consumer Price Index (CPI)Specific to particular group in the population which shows the cost of living of the group

Based on the changes in the retail prices of goods or services & incomes

Different consumer price indices to tracks the changes in the retail prices for different set of consumers

Reason for the different indices is the differing pattern of consumers

Current CPI – Last Calculated CPI

Last Calculated CPI

InflationRate

=

150 - 140

140

InflationRate

=100

100

= 7.12%

=

How We Measure Inflation?

Wholesale Price Index

WPI published in 1902 & one of the economic indicators available to policy makers

Replaced by the CPI market index in the 1970

Used to measure the change in the average price level of goods traded in wholesale market

Causes of Inflation

The main cause of inflation is the increase in the demand of goods and services and at the same time decrease in the

supply of goods and services.

There are two theories related to the causes of inflation:

Demand-pull (when there is excess demand)

Cost-push (when costs rise)

Other Factors

Increase in Population

Black Money

Causes of Inflation

Demand Pull Inflation :

Occurs when excess aggregate demand in the economy (overall) or in a specific market or industry

Businesses respond to high demand by raising prices to increase their profit margin

Causes of Inflation

Cost – push Inflation:Occurs when costs of production or operation are increasing

Cost Push inflation is mainly caused due to the following factors:

· increase in wages

· increase in cost of raw material

· increased cost of imported components

Effects of Inflation

Effect depends on the speed of inflation and the nature of the economy.

Rising Prices of Imports Lowers National Saving Redistribution of Income & Wealth Collapse of Monetary system Adverse Impact Socially and Politically Discourages Investment & Savings Higher Interest / Income Tax Rates

Consequences Of Inflation

Adverse effect on Production

Adverse effect on Distribution of Income

Obstacle to Development

Changes in Relative Prices

How to Control Inflation? Or Control Measures

• Monetary Measures• Fiscal Measures• Other Measures

Monetary Measure

• Credit Control

• Demonetization of Currency

• Issue of New Currency

Fiscal Measures

•Reduction in unnecessary expenditure

•Increase in Taxes

•Increase in savings

•Adopt Surplus Budget

Other Measures

To Increase Production

Rational Wage Policy

Price Control

T h a n k s