AoA people.

Would someone like to tell me about inflation? I only know that its bad because it makes products more expensive

Would someone like to not just tell about inflations, but also about the tools to control inflation?

Thanks in advance

With Salam /Shahid

If you didn't, firstly I advise you to look at to Supply and Demand model.
Basically , total amount of the local currency should match the gross value of domestically produced goods and services. If central bank prints more money than the gross domestic production, markets devalue the currency (price increase) and if people's incomes are not increasing at the same rate, their purchase power go down. we call it as inflation. This is the most common type of inflation, rarely there could be other reasons too... It is generally more complicated than given example when we consider all factors in an economy like the savings in gold or in other currencies (like US $), interest rates etc...

In simple terms, a country has suppliers and consumers ( I think the names explain what they do).

Think about a room as a country and the people in the room as various suppliers and consumers.

You have certain items that are used as medium of exchange (money) and if you want you can standardize it to one single thing (currency).

The amount of money is not reflective of how much the people in the room actually produce directly. Rather you have a base year where a certain amount of money represents a certain amount of production.

Now for years after that, the amount of production may not increase/decrease at the same rate as the money supply. Therefore prices change automatically as a result of this.

For example if production stays the same between year one and year two....but the money supply increases...you get more money being spent on the same amount of goods....thus prompting inflation. This is the monetarist view of inflation.

It can also be viewed as a mismatch between supply and demand. When demand increases...but supply cannot keep pace....you again get inflation...because again....more money (as a result of increased demand) is spent on the same amount of supply. Differing levels of inflation are caused by different levels of mismatch (in effect.....inflation is what brings about equilibrium or addresses the mismatch).....the greater the gap between demand and supply...the greater the magnitude of inflation. When you have more supply increase than demand....you get deflation (price levels drop).

Inflation can be caused by demand expanding and supply not expanding at the same level or even reversing. Demand can also be decreasing...but supply can be decreasing faster. Very bad inflation is caused when demand is increasing but supply is decreasing.

Deflation can be caused by demand increasing but supply increasing faster.....or demand decreasing and supply decreasing but not as fast.....or demand decreasing and suppliy increasing.

There are many possible combinations...it is all relative.

You can do your own research on the tools that govts and other organisations use to influence price levels and inflation and growth. Just do some googling.

inflation means a rise in the price levels. there are two main causes of Inflation:

1. Demand pull Inflation: this is caused when there is an increase in the aggregate demand for a particular product. when producers are not able to meet the increasing demand, the price goes up. in other words deman "pulls" the inflation upwards.

2. Cost push Inflation: this is caused by increase in the costs of inputs used to produce a good. this will increase cost of production and hence it will increase the price, causing inflation. in other words, costs "push" the prices upwards.

it is important to identify the type of inflation existing at a particular point of time. this is due to the fact that counter inflation measures could only be taken if the source of inflation is identified. in other words, the govt should knw wether to deal with increasing demand or increasing costs.

Thank you Public Enemy, Krad, and Skull-Buster, I really appreciate it

With Salam /Shahid

No problem man.

I was wondering:

You live in denmark shahid?

You speak danish?

It is a really nice country I have heard.

Yes and yes and a big yes to the last one

Good to hear.

BTW here is a website that explains the basics about fundamentals in economics (by links to other websites) that you might find useful:

http://www.econlib.org/library/Topics/High...hoolTopics.html

Thanks

(btw. if you wanted to know of Denmark then just drop a pm )

With Salam /Shahid

pakistani consumption is way too high....people don't save enough. THats the major reason for inflation in pak

This article explains the issue

China has a new growth challenger, Pakistan
(Bloomberg)
Updated: 2005-06-07 09:17


The world's second-fastest growing economy after China is no longer India. It's Pakistan.

According to figures released over the weekend by Pakistan's Prime Minister Shaukat Aziz, the $110 billion economy is estimated to have grown 8.4 percent in the current fiscal year that ends June 30. That compares with 9.5 percent expansion in China's gross domestic product last year, while India recorded 6.9 percent GDP growth in the 12 months ended March 31.

Now that Pakistan is within striking distance of China's growth, it aims to catch up. The growth target for the next fiscal year, as set out in the nation's annual budget yesterday, is as much as 8 percent, the same as Beijing's goal for the year.

That may be a trifle over optimistic. Pakistan isn't yet ready to sustain 8 percent growth year after year -- not until it can push up its savings rate, which is languishing at 14 percent of gross domestic product.

Inflation is at an eight-year high of 11 percent, a clear indication of an economy overheating from too much consumption. (China's problem is too much investment.)

Still, another year of strong growth is eminently achievable in Pakistan, provided the central bank can maneuver deftly to suppress inflationary expectations, even as the government goes ahead and steps up investments in public works.
Even a slightly less rapid expansion than this year would go a long way in boosting personal incomes, which have risen a very impressive 27 percent in U.S. dollar terms in the past two years.

Sept. 11 'Windfall'

Sure, Pakistan's retreat from the brink of a balance-of- payment crisis in 1999 had a lot to do with its Sept. 11 "windfall," as some commentators termed it. Pakistan received grants and debt waivers and additional textile quotas from the Bush administration for helping it topple the Taliban in Afghanistan.

That was in 2001.

In 2005, what's helping sustain growth isn't U.S. largesse, but a revival of investor interest, which is evident from the list of bidders short-listed by the government for a proposed sale of 26 percent in state-owned Pakistan Telecommunication Co.

Bidders for the phone service provider, whose market value is about $5.5 billion, include telecom companies from Singapore, China, Malaysia, United Arab Emirates, Turkey and Saudi Arabia.

Yesterday, the benchmark Karachi Stock Exchange 100 Index plunged 1.5 percent after the government said it would delay the stake sale in the phone company because of pressure from labor unions. The government said it isn't scrapping the sale, which it now expects to go through by end-June.

2007 Election

The risk of such setbacks will remain, though the broad outlines of an investor-friendly regime should stay intact at least until 2007 when President Pervez Musharraf will, according to news reports, shed his army uniform and seek re-election as a civilian. Musharraf, an army general, took power in a coup in October 1999, and appointed himself president in June 2001.

While poverty still remains endemic, and only 18 percent of women aged 35 to 44 are part of the workforce (compared with 96 percent for males in the same age group), a new middle class has started to emerge in Pakistan.

Private consumption is up 17 percent from a year earlier in the 12 months ending June 30. Per capita income has surged to $736. Once Pakistan crosses the $1,000 threshold, like China did last year, it'll become a middle-income country with a lucrative domestic market of 154 million consumers.

Further income growth in Pakistan will require new jobs. And there's no sign yet of a reduction in urban unemployment, which has risen almost 3 percentage points in the last nine years to reach 9.7 percent. For now, GDP growth appears to be driven by more productive use of domestic capital, supplemented lately by an inflow of foreign savings. The current account now has a full- year deficit equal to 1.2 percent of gross domestic product.

Selling Bonds

Capital flows have been buoyant, as Aziz, a former executive at Citibank NA, has made good use of easy global liquidity conditions to raise cheap money from bond sales.

From investor such as Temasek Holdings Pte, the Singapore government's investment arm that bought 25 percent of a Pakistani bank in April, it helps that Pakistan's relations with India are improving as businesses in the two fast-growing economies press for closer ties. The neighbors have fought two of their three wars over Kashmir, a half-century-old dispute that remains unsettled.

There's help coming from another quarter. Raw cotton, yarn, cloth and garments account for three-fifths of Pakistan's overseas shipments. Along with China and India, Pakistan is widely expected to gain from the new quota-free system of global textile trade.

Yesterday's budget scrapped a 15 percent tax on materials imported by the country's textile industry.

A textile windfall would be a big bonus for an economy brimming with optimism, and quite deservedly. After all, it has been two decades since it last grew as fast as this year. Mimicking China's growth may be a tough act to follow, but Pakistan seems determined.

Is it a older article, because the figures for last year growth figures are 8.4,9.4 and 10.5 % for Pakistan , India and China.

And can some one teach me about poverty and unemployment please ........

^ The sarcasm burns!

Specifically, how do you make inflation go down? What can SBP do to counter it?

The way I see it, GoP could garner a lot of support from the lower masses if the price of basic amentities wasn't so ridiculously high (and rising).