What is Inflation? It's types, causes, effects, control and rate in Pakistan

What is Inflation?

Want to know about inflation? What is inflation? Want to know about Inflation: Prices on the rise?
Here is the best platform for all your questions. Find complete details of inflation. Inflation definition, types, rate, causes, effects and control.

Definition of inflation:

Inflation is an economic term that describes the sustained increase in prices of products and services within a given period of time. Inflation is the rate of increase in prices. Today inflation is everywhere in the world. 

Inflation rate in Pakistan:

Inflation is one among  the intense in Pakistan. According to economic survey 2009-10 it’s rate was 13.65 to 12.94 percent while it was 10.74 to 8.9 percent in 2020-21 and it is 8.5 percent in 2022. In theses days inflation has created many problems . Due to inflation poor people live from hand to mouth in these days.

Types of inflation: 

There are different types of inflation but the main of them are followings: 

• Cost push inflation:

The inflation that arises due to sustained increase in the prices of those services and products which have no alternative available is called cost push inflation.

• Structural inflation:

 The inflation that arises due to the changes in the structure of products and services. The changes take place in the demand and supply of goods. Sometimes demand is high but supply of products are not enough to fulfill their demand in market. Some industries fulfill the demand but some some are not able to do this.

• Imported inflation:

The inflation that arises due to the increase in the prices of those services and products in a country which are imported from those other countries which increases the prices of their services and products is called imported inflation.

 • Open inflation:

The inflation that arises in open markets where there is no control on the prices of products by government or any other authority is called open inflation. Open markets are fully independent. They increase prices as they want and the government is not able to ask question about this. 

• Suppressed inflation:

The inflation that arises when the prices of products and services rise but government do not impose any monetary policy to control them is called suppressed inflation. Government should impose a monetary policy to control this condition.

How to measure inflation:

Shoppers’ typical for living depends on the prices of many items and services and the share of each in the household budget. To measure the typical consumer’s cost of living, government offices direct family studies to identify a bin of ordinarily bought items and track over time the expense of buying this item. (Housing expenses, including rent and home loans, comprise the largest component of the consumer basket in the United States.) The expense of this bin at a given time expressed comparative with a base year is the purchaser cost record (CPI), and the rate change in the CPI over a specific period is customer cost inflation, the most broadly utilized proportion of inflation.

Center buyer inflation centers around the fundamental and tenacious patterns in inflation by excluding prices set by the government and the more unpredictable costs of products, for instance, food and energy, most impacted by seasonal factors or temporary supply conditions. Core inflation is additionally observed closely by policymakers. Estimation of a general expansion rate—for a nation, say, and not just for consumers—requires a record with more extensive inclusion, such as the GDP deflator.

The CPI basket is generally kept constant over time for consistency, but is changed sometimes to reflect changing utilization designs —for instance, to include new hi-tech goods and to supplant items no longer broadly purchased. Because it shows how, on average, costs change over time for everything created in an economy, the contents of the GDP deflator vary every year and are more current than the most fixed CPI basket. On the other hand, the deflator incorporates nonconsumer items, therefore it is not a decent proportion of the cost of living.

Causes of inflation: 

There are so much factors that plays a role in increasing inflation. The main causes of inflation are as follows;

•  More investment:

More investment causes inflation it is because the amount of investment is greater than the amount gain in return.  Due to this reason investors may shift their money from government to other markets have low quantity of inflation. This is the big loss for an under developed country.

• Corruption or black money:

Corruption or black money is a main cause of inflation. It is because the people have much amount of money but the government has no record of those people. If  government do not control corruption then at last corruption leads to destruction of that country.

 • Foreign Remittance:

The transfer of money from foreign workers to their families on their home is called Foreign Remittance. Foreign Remittance causes inflation it is because it increases the domestic prices in a country and expand the exchange rate of that country.

• Foreign Aids:

The amount of money that a foreign country gives to us is called foreign Aids. It causes inflation because it retards and destroy the economic development of recipient country and recipient country become dependent on that foreign country.

• Consumer trends:

Consumer trends causes inflation because when the demand of a particular product or service increases then its available supply decrease. When fewer amount of items is left then the consumers are willing to pay more money to obtain these items. Due to this demand pull condition inflation increases due to higher prices of products.

Effects of inflation: 

Inflation leads to both good and bad effects. The effects of inflation are as follows;

Good effects:

 • Increase in production rate
 • Increase  engaged opportunities in the             world 
• Increase within the process of economic        development 

Bad effects: 

• Generates unfair distribution of income           and wealth in country
 • Increases the rate of interest 
• Generates many social evils 
• Decreases the purchasing power of                   individual
• Raises the price of burrowing
 • Strengthens or Weakens the currency 

Control of inflation:

 Inflation is raising day by day so it is necessary to control it for the better development of our country. Government can control inflation by following methods;

• Government expenditure:

Government can control inflation by reducing its expenditure. Government can decreases the salaries of employees working in government fields but it causes recession or job losses. Government should make contractionary monetary policy to control inflation through reducing the money supply within an economy by increasing interest rate and decreasing bond prices.

 • Control corruption:

Government should check and control the control the corruption that is the main cause of inflation. The people have much amount of money but the government has no record of those people. Government should make records of every field.

 • Budget surplus:

Budget surplus means the recipients are more that the expenditures available. In this case the government takes more amount of money from the economy and serves into its expenditures. This results a fall in price level and demand in the economy that helps to fight with the inflation.

 • Balance of payment:

Government can control inflation by controlling the balance of payment.

By reducing the supply of money in huge amount so that the value of its currency increases in the international exchange markets.

Conclusion: 

Inflation is everywhere within the world. It’s rate is high in developing countries and is low in under developed countries. Effective operations of fiscal and monetary policies are crucial to control the inflation.