Inflation & Its Impact on Pakistan Economy

8/16/2019 Inflation & Its Impact on Pakistan Economy

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“INFLATION & ITS IMPACT

ON PAKISTAN ECONOMY”


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Group Members:

Muhammad Ammar Hanif

Ammara Shaukat

Hamza saleem

Rafih Jamal Usman Arshad


3/25

INFLATION:

“Inflation is a situation whee!" thee is a #ontinuous an$ %esistent ise in the eneal

%i#e le'el(”

Inflation is the ise in the %i#es of oo$s an$ se'i#es in an e#ono)" o'e a %eio$ of

ti)e( *hen the eneal %i#e le'el ises+ ea#h unit of the fun#tional #uen#" !u"s

fewe oo$s an$ se'i#es, #onse-uentl"+ inflation is a $e#line in the eal 'alue of

)one" . a loss of %u#hasin %owe in the intenal )e$iu) of e/#hane+ whi#h is also

the )oneta" unit of a##ount in an e#ono)"(


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TYPES OF INFLATION:

0e)an$ %ull inflation:

This o##us when the e#ono)" ows -ui#1l" an$ stats to2o'eheat3 4 Aeate $e)an$ 5A06 will !e in#easin faste than aeate su%%l"

5L7AS6(

Cost %ush inflation:

This o##us when thee is a ise in the %i#e of aw )ateials+ hihe

ta/es+ et#(


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Othe $iffeent t"%es of inflation: Cee%in inflation(

*al1in inflation(

8allo%in inflation(

9"%einflation(

Staflation(

0eflation(

*ae inflation(

Asset inflation(

Asset inflation8as(


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*al1in Inflation:

This t"%e of ston+ o %eni#ious+ inflation is !etween ; a "ea( It is ha)ful to

the e#ono)" !e#ause it heats u% e#ono)i# owth too fast( Peo%le stat to !u" )oe

than the" nee$+ ?ust to a'oi$ to)oow@s )u#h hihe %i#es( This $i'es $e)an$ e'en

futhe+ so that su%%lies #an@t 1ee% u%( Moe i)%otant+ neithe #an waes( As a esult+

#o))on oo$s an$ se'i#es ae %i#e$ out of the ea#h of )ost %eo%le(


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8allo%in Inflation:

*hen inflation ises to ten %e#ent o eate+ it wea1s a!solute ha'o# on the e#ono)"(

Mone" loses 'alue so fast that !usiness an$ e)%lo"ee in#o)e #an@t 1ee% u% with #osts

an$ %i#es( Foein in'estos a'oi$ the #ount"+ $e%i'in it of nee$e$ #a%ital( The

e#ono)" !e#o)es unsta!le+ an$ o'en)ent lea$es lose #e$i!ilit"( 8allo%in

inflation )ust !e %e'ente$(


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9"%einflation:

9"%einflation is when the %i#es of )ost oo$s an$ se'i#es s1"o#1et+ usuall" )oe

than => a )onth( It usuall" stats when a #ount"@s Fe$eal o'en)ent !eins

%intin )one" to %a" fo fis#al s%en$in( As the )one" su%%l" in#eases+ %i#es #ee%

u% as in eula inflation(


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Staflation:

Staflation is ?ust li1e its na)e sa"s: when e#ono)i# owth is stanant+ !ut thee still

is %i#e inflation( This see)s #onta$i#to"+ if not i)%ossi!le( *h" woul$ %i#es o u%

when thee isn@t enouh $e)an$ to sto1e e#ono)i# owthB It ha%%ene$ in the


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0eflation:

0eflation is when asset an$ #onsu)e %i#es #ontinue to fall( This )a" see) li1e a

eat thin fo sho%%es+ e/#e%t that the #ause of wi$es%ea$ $eflation is a lonte)

$o% in $e)an$( That )eans that a e#ession is %o!a!l" alea$" un$ewa"+ with ?o!

losses+ $e#linin waes+ an$ an onoin $e#line in the 'alue of "ou ho)e an$ "ou

sto#1 %otfolio( This aa'ates $eflation !e#ause !usinesses lowe %i#es in a

$es%eate atte)%t to et %eo%le to !u" thei %o$u#ts(


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Cee%in o )il$ inflation is when %i#es ise ;> a "ea o less( A##o$in

to the (S( Fe$eal 7ese'e+ when %i#es ise H> o less+ it@s a#tuall"

!enefi#ial to e#ono)i# owth( That@s !e#ause this )il$ inflation sets

e/%e#tations that %i#es will #ontinue to ise( As a esult+ it s%a1s in#ease$

$e)an$ as #onsu)es $e#i$e to !u" now !efoe %i#es ise in the futue( G"

in#easin $e)an$+ )il$ inflation $i'es e#ono)i# e/%ansion(

Cee%in inflation:

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*ae inflation:

*ae inflation is when wo1es@ %a" ises faste than the #ost of li'in( This o##us when

thee is a shotae of wo1es+ when la!o unions neotiate e'ehihe waes+ o when

wo1es effe#ti'el" #ontol thei own %a"( A wo1e shotae o##us whene'e

une)%lo")ent is !elow >( La!o unions neotiate$ hihe %a" fo auto wo1es in the

=s( CEOs effe#ti'el" #ontol thei own %a" !" sittin on )an" #o%oate !oa$s+

es%e#iall" thei own( All of these situations #eate$ wae inflation( Of #ouse+ e'e"one

thin1s thei wae in#eases ae ?ustifie$( 9owe'e+ hihe waes ae one ele)ent of

#ost%ush inflation+ an$ #an #ause %i#es of the #o)%an"@s oo$s an$ se'i#es to ise(

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Asset Inflation:

An asset !u!!le+ o asset inflation+ o##us in one asset #lass+ su#h as housin+ oil o

ol$( It is often o'eloo1e$ !" the Fe$eal 7ese'e an$ othe inflationwat#hes when

the o'eall ate of inflation is low( 9owe'e+ as we saw in the su!%i)e )otae #isis

an$ su!se-uent lo!al finan#ial #isis+ asset inflation #an !e 'e" $a)ain if left

un#he#1e$(


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Asset Inflation 4 8as:

8as %i#es ise ea#h s%in in anti#i%ation of the su))eti)e 'a#ation $i'in season(

In fa#t+ "ou #an e/%e#t as %i#es to ise ten #ents %e allon ea#h s%in( 9owe'e+

%oliti#al un#etaint" in the oile/%otin #ounties $o'e as %i#es hihe in H=


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E#ono)ist 'iew on inflation:

It has !een eneall" aee$ !" the e#ono)ists that hih ates of inflation an$

h"%einflation ae #ause$ !" an e/#essi'e owth in the su%%l" of )one"( To$a"+ )ost e#ono)ists fa'o a low stea$" ate of inflation( Low 5as o%%ose$ to eo

o neati'e6 inflation )a" e$u#e the se'eit" of e#ono)i# e#essions !" ena!lin the

la!o )a1et to a$?ust )oe -ui#1l" in a $owntun+ an$ e$u#e the is1 that a li-ui$it"

ta% %e'ents )oneta" %oli#" fo) sta!iliin the e#ono)"(

The tas1 of 1ee%in the ate of inflation low an$ sta!le is usuall" i'en to )oneta"

authoities( 8eneall"+ these )oneta" authoities ae the #ental !an1s that #ontol the

sie of the )one" su%%l" thouh the settin of inteest ates+ thouh o%en )a1eto%eations+ an$ thouh the settin of !an1in ese'e e-uie)ents(


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Causes of inflation in Pa1istan:

inflation #an ha%%en when o'en)ents %int an e/#ess of )one" to $eal with a #isis(

*hen an" e/ta )one" is #eate$+ it will in#ease so)e so#ietal ou%3s !u"in %owe(

Shotaes ae then #eate$ an$ )e#hants lose !usiness(

a ise in %o$u#tion #osts(

isin la!o #osts #an also lea$ to inflation(

intenational len$in an$ national $e!ts(

A $ee% $o% of the e/#hane ate #an also esult in inflation(

inflation #an also !e #ause$ !" fe$eal ta/es %ut on #onsu)e %o$u#ts(


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Othe Inflation #auses:

G" in#ease in $e)an$ & $e#ease in su%%l":

1. Increase in demand:

. in#ease in )one" su%%l"(

. if thee is an in#ease in the 'elo#it" of #i#ulation of )one" it also lea$s to inflation(

. Moe in'est)ent(

. 8o'en)ent of Pa1istan has to )a1e a lot of non%o$u#ti'e e/%en$itues li1e $efense et#(

. 0efi#it finan#in is anothe #ause of inflation(

. In#ease in foein e)ittan#es is in#easin the )one" su%%l" in ou #ount"(

. Foein ai$s ae also a sou#e of )o!iliation of esou#es fo) i#h #ounties to %oo #ounties(

. 0ue to $e)onstation effe#t %eo%le of ou #ount" want to #o%" the st"les of %eo%le of i#h #ounties(

. Po%ulation of Pa1istan is in#easin $a" !" $a"( In#easin %o%ulation is $e)an$in )oe an$ it #eates

inflation(


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Othe Inflation #auses: 5Cont(6

H( Decrease in supply:

Low owth ate of ai#ultual se#to #ause$ in shotae of %o$u#ti'it"( It esults in low su%%l" an$ in#ease in

%i#e le'el(

Ou in$ustial se#to is not at $e'elo%e$ fo) $ue to use of !a#1wa$ te#hni-ues of %o$u#tion( Its less

%o$u#tion also #eates shotae in )a1et an$ #ause$ in inflation(

)oe waes an$ salaies thee is an in#ease in in#o)e an$ it #ause$ in inflation(

In#ease in the %i#es of i)%ots also lea$s to #eation of inflation(

The 'alue of ou #uen#" is $e#ease$ $ue to $e'aluation( It )a1es i)%ote$ oo$s )oe e/%ensi'e an$ it lea$s

to shotae of su%%l"(

The i)%osition of in$ie#t ta/es is a eason fo in#ease in %i#es(


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Effe#t of inflation in Pa1istan E#ono)":

The )ost i))e$iate effe#ts of inflation ae the $e#ease$ %u#hasin %owe of the u%ee

an$ its $e%e#iation(

0e%e#iation is es%e#iall" ha$ on etie$ %eo%le with fi/e$ in#o)es+ as s%en$in %owe

$e#eases ea#h )onth( Those not on fi/e$ in#o)es ae )oe a!le to #o%e+ !e#ause the"

#an si)%l" in#ease thei in#o)e(

Anothe $esta!iliin effe#t of inflation is that so)e %eo%le #hoose to s%e#ulate hea'il" in

an atte)%t to ta1e a$'antae of the hihe %i#e le'el( Ge#ause so)e of the %u#hases ae

hihis1 in'est)ents+ s%en$in is $i'ete$ fo) the no)al #hannels an$ so)e stu#tual

une)%lo")ent )a" ta1e %la#e( Finall"+ inflation altes the $isti!ution of in#o)e(

Len$es ae eneall" hut )oe than !oowes $uin lon inflationa" %eio$s+ whi#h

)ean that loans )a$e ealie ae e%ai$ late in inflate$ u%ees( Inflation wea1ens the

fun#tion of )one" as stoae of 'alue+ !e#ause ea#h unit of )one" is woth less with the

%assin of ti)e( The %oessi'e loss of the 'alue of )one" $uin a %eio$ of inflation

)a1es the !oowes to !e less willin to use the )one" as stan$a$ $iffee$ %a")ents(


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5Cont(6

Followin ae 8OO0 EFFECTS of inflation+ if ate is H> to >:


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5Cont(6

Followin ae the GA0 EFFECTS of inflation:


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Measues ta1en to #ontol the inflation in

Pa1istan:

The inflation was well un$e #ontol fo) the fis#al "ea H=== to H==( 9owe'e+ it

shoots u% to (;> in the "ea H== )ainl" $ue to the ise in su%%ot %i#e of wheat an$

a sue in intenational %i#e of oil(


23/25

Measues ta1en to #ontol the inflation in

Pa1istan: 5Cont(6

The 8o'en)ent of Pa1istan !ein well awae of the a$'ese effe#t of inflation is ta1in followin

)easues to !in $own the inflationa" %essue in the e#ono)"(

In#ease in the su%%l" of essential oo$s(

Esta!lish)ent of hih le'el #o))ittee(

7ise in the %i#e of oil(

Tihtenin Moneta" %oli#"(

I)%ot of *heat(

Su%%l" of flou an$ othe ite)s of utilit" thouh tilit" Stoes(


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Pa1istan Coe Inflation 7ate H=


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Con#lusion:

In Pa1istan the eneal %i#e le'el is %esistentl" isin sin#e its esta!lish)ent(

The %i#es e)aine$ 'olatile $uin the $e#a$e of to

)ainl" !e#ause of $e#linin e#ono)i# owth+ e/%ansiona" %i#es+ out%ut set !a#1s+hihe ta/es an$ a $e%e#iation of Pa1istan u%ee(

The inflation ate state$ $e#linin fo) $uin

H==;H==( The sliht ise in %i#es was $ue to in#ease in %i#e of wheat( The inflationate ea#he$ as hih as (;> in the "ea H==H== )ainl" $ue to ise in %i#e of wheat

an$ in#ease in the intenational oil %i#e(

Inflation & Its Impact on Pakistan Economy

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