Presentation 1

Presentation cps
Topic : Inflation
Group members:
• Jawad
• Haris
• Mateen
• Areal
Introduction:
Inflation is the rate at which the general
level of prices for goods and services is rising,
leading to a decrease in purchasing power.
It's a crucial economic indicator that

affects individuals, businesses, and
governments. Let's delve into the concept of
inflation and specifically explore its dynamics
in Pakistan.
Causes of Inflation
1. Demand-Pull Inflation:
- Caused by an increase in aggregate demand surpassing aggregate
supply.
- Common during periods of economic growth.
- Example: Increased consumer spending leading to higher
demand for goods and services.
Cost-Push Inflation:
- Arises from increased production costs, often due to factors like
rising wages or higher raw material prices.
- Can result in decreased supply and higher prices.

- Example: Surge in oil prices causing production costs to rise.
3. Built-In Inflation (Wage-Price Spiral):
- Emerges from a cycle of rising wages and prices.
- Workers demand higher wages, and businesses, in turn, raise prices to

cover increased labor costs.
- Example: Collective bargaining leading to wage hikes and subsequent

price increases.
4. Hyperinflation:
- Extremely high and typically accelerating inflation.
- Often caused by a collapse in the value of a country's currency.
- Example: Historical cases like Zimbabwe in the late 2000s.

Supply Chain Disruptions
- Events: Natural disasters, wars, and geopolitical tensions.

- Impact on Prices: Shortages and higher prices for goods and services.
- Case Studies: Instances where supply chain disruptions led to inflation.
Exchange Rates
- Influence on Imported Goods: Changes in exchange rates affecting
import costs.
- Depreciation Effect: How a depreciating domestic currency can
contribute to cost-push inflation.
- Examples: Historical events showcasing the impact of exchange rates on
inflation.
Energy Prices
- Significance: Influence on production costs in various sectors.

- Volatility: How fluctuations in oil prices can affect inflation.
- Mitigation Strategies: Policies to address the impact of energy price
changes on inflation
6: Fiscal Policy
- Government Influence: Changes in taxation and public spending.
- Expansionary Fiscal Policy: Increased government spending without
corresponding increases in productivity or taxation.
- Real-world Examples: Historical instances where fiscal policy contributed
to inflation.
Impacts of inflation
1 -Cost of Living Increases
- Rising Prices: Effects on the cost of essential goods and services.

- Budgetary Strain: Challenges for fixed-income households.
- Examples: Illustrations of how specific expenses are impacted.
2: Purchasing Power Erosion-

-Explanation: How inflation diminishes the value of money over time.
-Impact on Consumers: Reduced purchasing power, affecting the standard
of living.
- Visual Representation: Graph depicting the decline in purchasing power
3: Uncertainty and Planning Challenges
- Business Planning: Difficulty in predicting future costs.
- Investment Decisions: The challenge of long-term planning amid uncertain
inflation rates.
- Economic Decision-Making: Impact on government and corporate
planning.
4: International Trade
- Exchange Rates: How inflation affects currency values.
- Export and Import Dynamics: Influence on trade balances.
- Competitiveness: Impact on a nation's competitiveness in the global market
5- Asset Price Changes
- Real Estate: Impact on property values and housing markets.

- Stock Markets: Fluctuations and responses to inflationary pressures.
- Precious Metals: Historical role of assets like gold during inflationary periods.
6- Small Business Challenges

- Operating Costs: Rising costs for inputs and operational expenses.
- Pricing Dilemma: Balancing the need for increased prices without losing
customers.
- Survival Strategies: Coping mechanisms for small businesses in inflationary
environments.
7: Income Redistribution
- Wage-Price Spiral: Built-in inflation and its impact on income distribution.
- Effect on Fixed Incomes: Disproportionate impact on retirees and those on fixed
pensions.
- Social Implications: Widening income inequality.
8: Effect on government
-High inflation can cause GDP growth to slowdown – leading to lower tax
revenues & increased borrowing.
-High inflation can lead to increased market interest rates making government
borrowing more expensive.
Historic inflation in Pakistan
Pakistan has witnessed several periods of inflation throughout its

economic history. Here are notable periods:
1. 1970s Oil Crisis:
- Cause: Global oil prices surged, impacting Pakistan's import bill.

- Effect: High import costs led to a rise in prices domestically.
2. 1980s Economic Reforms:
- *Cause: Structural adjustment programs and economic reforms.

- *Effect: Initial increase in inflation due to policy adjustments.
3. *Early 2000s:*
- *Cause:* Various factors, including fiscal mismanagement and global
economic conditions.
- *Effect:* High inflation, reaching double digits in the early 2000s.
4. *2010-2013:*
- *Cause:* Energy shortages, fiscal deficits, and external pressures.
- *Effect:* Inflation remained elevated, impacting consumer purchasing
power.
5. *2019-2020:*
- *Cause:* Supply-side shocks, fiscal challenges, and global economic
uncertainties.
- *Effect:* Inflation rose, reaching double digits, driven by food and
energy prices.
6. Post-COVID-19 Impact (2020-2021):
- Cause: Economic disruptions due to the pandemic, supply chain
issues.
- Effect: Initial deflationary pressures followed by a rebound in
inflation.
Each period of inflation in Pakistan is unique, shaped by a

combination of domestic and global factors. Government policies,
external shocks, and structural issues have played pivotal roles in
influencing the inflationary trends in the country.

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It's a crucial economic indicator that

- Can result in decreased supply and higher prices.

- Workers demand higher wages, and businesses, in turn, raise prices to

- Example: Collective bargaining leading to wage hikes and subsequent

- Often caused by a collapse in the value of a country's currency.

- Example: Historical cases like Zimbabwe in the late 2000s.

- Events: Natural disasters, wars, and geopolitical tensions.

- Significance: Influence on production costs in various sectors.

1 -Cost of Living Increases

- Rising Prices: Effects on the cost of essential goods and services.

2: Purchasing Power Erosion-

- Real Estate: Impact on property values and housing markets.

6- Small Business Challenges

Pakistan has witnessed several periods of inflation throughout its

1. 1970s Oil Crisis:

- Cause: Global oil prices surged, impacting Pakistan's import bill.

2. 1980s Economic Reforms:

- *Cause: Structural adjustment programs and economic reforms.

Each period of inflation in Pakistan is unique, shaped by a

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