what is inflation, how it effects economy, how to controll inflation, methods to check inflation

1. INFLATION
Group members:
Aiman Naveed (032)
Ifrah Ferheen (019)
Sundas Nosheen (037)
Iqra Akhter (028)

2. Inflation
• Inflation is a sustained increase in the general
price level of goods and services in an
economy over a period of time.
• Inflation reflects a reduction in the purchasing
power per unit of money .
• Inflation is one of the obstacles on the way of
development

3. HISTROY OF INFLATION
• In course of history, many
different forms of money have
been used.
• When gold was used as
currency government mix
them with other metals and
reissue them at the same
value. In this way price of each
coin is lowered.
• Then currency notes were
introduced and government
can print notes equivalent to
amount of gold they have.

4. Methods of measuring inflation
• Consumer Price Index
(CPI)
The CPI is constructed on the
basis of retail prices of 375
goods in 35 big cities. This price
index analyses the cost of living
of urban consumers
• Wholesale Price Index
(WPI)
• Sensitive Price Index
(SPI)

5. Highest rate of INFLATION in Pakistan
• The rate of inflation was highest in 2008 due to
the steep rise in food inflation
• Non-food inflation also showed increase of 19 % as
compared to 6.8% of last year.
• In the international markets, oil prices and food
prices dropped.
• In Pakistan due to depreciation of rupee, domestic
inflation rate was increased

6. CURRENT SITUATION OF INFLATION
• After 15 months, rate of inflation increased to 10.9% in
November, 13.
• Prices of petroleum and electricity tariffs have
increased, new taxes have been introduced and
increased the overall inflation.
• Rupee depreciation also led to increase in prices of
imported consumer and non-consumer items.
• The government has projected an inflation target of
8pc for 2013-14.This target has already been surpassed
in the first five months of year. Non-food inflation
witnessed an increase of 9.4pc.

7. Causes of Inflation
• Demand-Pull Inflation
“Too much money chasing too few goods". words, if
demand is growing faster than supply, prices will
increase.
• Cost-Push Inflation
When companies costs go up, they need to increase
prices to maintain their profit margins
• Oil Prices and Inflation
oil is a major input in the economy, as oil prices
move up or down, inflation follows in the same
direction.

8. • Value of US Dollar
The value of a dollar is observed in terms of
purchasing power. When inflation goes up,
there is a decline in the purchasing power of
money.
• International Loans
As nations borrow money, they have to deal
with interests, which in the end cause prices
to rise as a way of keeping up with their
debts.
• Federal taxes
As the taxes rise, suppliers often pass on the
burden to the consumer

9. CAUSES OF INFLATION IN PAKISTAN
• International Inflation
• Increase in Wages
• Fall in Production
• Population Pressure

10. • No Limits to Growth
• Inflation caused by
budget
• An increase in import
duties
• Expenditure on Defense

11. Effects of inflation
• Decrease in purchasing power of rupee
• Depreciation is especially hard on retired people
with fixed incomes, as spending power decreases
each month.
• Alters the distribution of income: Lenders
are generally hurt more than borrowers during
long inflationary periods, which mean that loans
made earlier are repaid later in inflated rupees.
• Weakens the Value of money: Inflation
weakens the function of money as storage
of value, because each unit of money is
worth less with the passing of time.

12. • Fixed income block :It is a huge problem for
employees, taking fixed salaries. People living off a
fixed-income, such as retirees, see a decline in their
purchasing power and, consequently, their standard
of living.
• Unfair distribution : It generates unfair distribution
of income and wealth among the people
• Reduces the saving: Inflation reduces the saving of
the population as expenditures increases so very
difficult to save money

13. • Rate of interest: Inflation increases the rate of
interest.
• Social evils: Inflation results in promotion of
social evils like bribery, black-marketing,
smuggling, suicidal actions and kidnapping
• Poor labor force: It generates very bad effects
on the poor labor force, as there is inflation so
people can’t invest because they didn’t take the
chance of loss so labor class didn’t much work to
do.

14. • Reprising costs: The entire
economy must absorb reprising costs
("menu costs") as price lists, labels,
menus and more have to be updated.
• Effect on domestic products: If the inflation
rate is greater than that of other countries,
domestic products become less competitive
• Disturbance in all sectors: Because of
inflation, the real output, relative prices, interest rates
and the reserves from taxes all are affected.

15. Measures to control inflation
1. Monetary Measures
2. Fiscal Measures
3. Non-Monetary Measures or
General Measures.

16. 1 MONETARY MEASURES
• Open Market Operation
• Monetary Reforms
• Marginal Requirement
• Credit Rationing

17. 2. FISCAL MEASURES
• Cut on Expenditure
• Change in Taxation System
• Restriction on Exports
• De-nationalization
• Protection to Infant
Industries

18. 3. GENERAL MEASURES
• Population Planning
• Effective Planning
• Increase in Output
• Political Stability
• Discipline
• Hoarding and Smuggling
• Exploration of Mineral Resources

19. Conclusion
• In Pakistan, it has squeezed the major part of the
population.
• It needs to be controlled by strategic planning.
• Domestic production should be encouraged
instead of imports.
• Foreign investment should be attracted.