Inflation in Pakistan

Topics: Inflation, Money, Monetary policy Pages: 6 (1583 words) Published: August 15, 2013
Inflation in Pakistan. Its Types, causes, measures and effects

WHAT IS INFLATION? DISCUSS ITS TYPES, CAUSES, MEASURES AND EFFECTS. Introduction:
Collective increase in the supply of money, in money incomes, or in prices refers to inflation. Inflation is generally thought of as an undue rise in the general level of prices.  Definition:
“Inflation is a situation whereby there is a continuous and persistent rise in the general price level.” 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.”
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 %, while it was 22.3 % in last fiscal year. According to ESP 2011-12, rate of inflation (CPI) is 10.8%. 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. TYPES OF INFLATION:

Following are the main types of inflation, which are different from one another due to their causes: 1)      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. 2)      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.  3)      Structural Inflation
Sometimes prices rise in an expanding economy because the supply cannot keep up with rising demand because of structural inflexibilities. This is also called the Structuralist Argument for inflation. 4)      Imported Inflation

In such inflation local governments are helpless; it is due to an increase in the prices of imported goods. To control it government may bans the imported items. 5)      Open Inflation
If there is no control over rise in prices, it will be determined by free forces of demand and supply. 6)      Suppressed Inflation
If prices are subject to governmental control then their increase is made by the government action. 7)      Ex-ante & Ex-post Inflation
Ex-ante inflation is the expected inflation and ex-post is the actual inflation. For example, if people of Pakistan expect an inflation rate of 10% it will Ex-ante inflation but actual inflation is 7 % it will be ex-post. 8)      Anticipated Inflation

If the actual rate of inflation is perfectly in accordance with the people’s expectations it is called anticipated inflation. 9)      Unanticipated Inflation
If the actual rate of inflation is not according to the people’s expectations, it is called unanticipated inflation.  10)  Profit Inflation
Profit inflation is the result of the greed of businessmen. It usually occurs in such economy, which are dominated by monopolies. 11)  Deficit Inflation
Government has to borrow form banks and non-bank & internal and external resources in case of deficit financing. It also caused inflation named as deficit inflation. 12)  Devaluation Inflation

Devaluation also leads to inflation. Devaluation decreases the purchasing power of our currency that results in inflation. 13)  Ceiling Inflation
Inflation that occurs due to various prices ceiling enforced by government. Price ceiling are set by government to maintain prices of certain essential goods at a determined level. 14)  Income Inflation

If there is an increase in income of the people, it will increase the money supply in the country that leads to income inflation. DEGREES OF INFLATION:...
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