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Inflation in Pakistan

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Salman Nasir

on 11 August 2015

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Transcript of Inflation in Pakistan

Inflation in Pakistan
2010 - 2015
Inflation
Inflation refers to a rise in prices that causes the purchasing power of a nation to fall.
Inflation is normal economic development as long as the annual percentage remains low; once the percentage rises over a pre-determined level, it is considered an inflation crisis.
There are many types of inflation:
INFLATIONARY FACTORS IN PAKISTAN
Recommendations:
Domestic production should been encouraged instead of imports.
Investment should be given preference in consumer goods instead of luxuries. Agriculture sector should be given subsidies.
Foreign investment should be attracted and developed countries should be requested for financial and managerial assistance.


The most important inflation is called demand-pull inflation.

It occurs when the total demand for goods and services in an economy exceeds the available supply, so the prices for them rise in a market economy.


Costs of production rise for one reason or another.
Force up the prices of finished goods and services.

Often a rise in wages in excess of any gains in labor productivity is what raises unit costs of production and thus raises prices.

Its more frequently called administered price inflation.
Businesses in general decide to boost their prices to increase their profit margins.
Not occur normally in recessions but when the economy is booming and sales are strong.
Any of the other three factors hits a basic industry causing inflation there, and since the industry hit is a major supplier of many other industries.
The aim of this presentation is to find the determinants of five year inflation in Pakistan, its causes and measures to control it.
Causes for inflation:
There are many causes for inflation, depending on a number of factors.
< Excess money printing
As result:
Prices end up rising at an extremely high speed to keep up with the currency surplus.
In which prices are forced upwards because of a high demand.
Cost-push inflation:
Demand-pull inflation:
Pricing-power Inflation:
As for example:
Oil
Gas
Steel
< High production cost
A rise in production costs is leads to an increase in the price of the final product.
For example:
If raw materials increase in price, then?
If rising labor costs, then?
Then the companies usually chose to pass on those costs to their customers.
< International Lending and National Debts
As nations borrow money:
They have to deal with interests
Prices to rise as a way of keeping up with their debts.
A deep drop of the exchange rate can also result in inflation
< Federal Taxes
As the taxes rise:
Suppliers often pass on the burden to the consumer.
Once prices have increased, they rarely go back, even if the taxes are later reduced.
EFFECTS OF INFLATION
Most effects of inflation are negative, and can hurt individuals and companies alike, below is a list of negative and “positive” effects of inflation.
NEGATIVE EFFECTS
Distortion of relative prices
usually the prices of goods go higher, especially the prices of commodities.
Higher uncertainties:
Instability of prices
Existing creditors will be hurt
They will receive money from their borrowers later will be lower than the money they gave before.
Causes an Increase in tax bracket:
People will be taxed a higher percentage if their income increases following an inflation increase.
POSITIVE EFFECTS
It can benefit the cartels:
It benefits big cartels
Destroys small sellers
It can cause price control set by the cartels for their own benefits).
It might relatively benefit borrowers who will have to pay the same amount of money they borrowed.
SUPPLY-SIDE SHOCKS
Large fluctuations in food and oil prices, effects of which on overall inflation.
INCREASED DOMESTIC DEMAND
Increased domestic demand created an output gap, putting upward pressure on prices.
INCREASE IN NET IMPORTS
The growing gap between domestic demand and production was filled by a sharp increase in net imports.
RISING TRADE DEFICIT
The expectations effect is very important since there is a danger that the current high rate of inflation can get locked into expectations of inflation.
RISING IMPORT PRICES
Increase in prices of goods, such as petrol,raw material etc makes our imports costlier, impacting on cost of production.
In Pakistan, most important categories in the consumer price index are
Food and non-alcoholic beverages (35 percent of total weight)
Housing, water, electricity, gas and fuels (29 percent)
Clothing and footwear (8 percent)
Transport (7 percent).
The index also includes:
furnishings and household equipment (4 percent)
education (4 percent)
communication (3 percent) and health (2 percent).
Pakistan Inflation Rate
The inflation rate in Pakistan was recorded at 1.80 percent in July of 2015.
Inflation Rate in Pakistan averaged 7.97 percent from 1957 until 2015, reaching an all time high of 37.81 percent in December of 1973 and a record low of -10.32 percent in February of 1959.
Inflation Rate in Pakistan is reported by the Pakistan Bureau of Statistics.
Pakistan Inflation Rate Continues to Fall
Pakistani annual inflation rate slowed to 2.11 percent in April of 2015 from 2.49 percent in the previous month, due to a drop in fuel prices.
Pakistan Inflation Rate Up to 7.7% in 2014
Pakistan annual inflation rate rose to 7.7 percent in 2014 from 7 percent in August of 2014.
The increase was mainly due to higher food and electricity prices.
Pakistan Inflation Rate Up to to 8.55% in 2013
In 2013, Pakistan inflation rate accelerated to 8.55 percent, as food prices continue to rise.
SECTORIAL INFLATION
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