causes and impacts of inflation on businesses

8/6/2019 Causes and Impacts of Inflation on Businesses

1/17

Causes and Impacts OfCauses and Impacts Of

Inflation on BusinessesInflation on BusinessesPrepared byPrepared by:: Sajid khan khattakSajid khan khattak

PresenterPresenter: Jebran khattak, Tahir, ShakirBady, Miss: Jebran khattak, Tahir, ShakirBady, MissTake (from them) what is surplus (of their needs); andTake (from them) what is surplus (of their needs); and

command what is right;command what is right; Al Quran AlAl Quran Al-- Araaf (7: 199)Araaf (7: 199)1818


2/17

Definition of InflationDefinition of Inflation

Inflation is the process in which thereInflation is the process in which thereis continues increase in the generalis continues increase in the general

price level and money loses its valueprice level and money loses its valuecontinuously over a specific period ofcontinuously over a specific period oftime.time.

Milton Friedman define inflation is aMilton Friedman define inflation is asteady and sustained rise in thesteady and sustained rise in theprice.price.

When too much money chases too fewWhen too much money chases too few

goods is called inflation.goods is called inflation.


3/17

OBJECTIVEOBJECTIVE

1.To find out the factor which contribute in1.To find out the factor which contribute ininflation.inflation.

To find how much government policy isTo find how much government policy iseffective in controlling the inflation.effective in controlling the inflation.

To find the impact of inflation onTo find the impact of inflation onconsumption pattern of general public.consumption pattern of general public.

To recommend effective policy to controlTo recommend effective policy to controlinflation.inflation.


4/17

Causes of inflationCauses of inflation

BACKGROUNDBACKGROUND

Increase in oil prices in 1970 (supplyIncrease in oil prices in 1970 (supply

shocks, oil prices high due to supplyshocks, oil prices high due to supplyshortages)shortages)

2008 financial crisis (Cheap credit, Sub2008 financial crisis (Cheap credit, Subprime mortgage prices first high than atprime mortgage prices first high than atonce fall, burst of housing bubbles andonce fall, burst of housing bubbles andfood prices increase (bio fuel productionfood prices increase (bio fuel production))


5/17

Boom and collapse of Banking system in USABoom and collapse of Banking system in USA


6/17


7/17

J.M Keynes classified inflation in two mainJ.M Keynes classified inflation in two main

groupsgroups

1.Demand pull inflation1.Demand pull inflation:: aggregateaggregatedemand exceed aggregate supplydemand exceed aggregate supply

Non development expenditure like defenseNon development expenditure like defense

Deficit financingDeficit financing

Consumption expenditure like remittancesConsumption expenditure like remittances

Backward agriculture and industryBackward agriculture and industry


8/17

Labor inefficient and undesirableLabor inefficient and undesirableactivityactivity

Long term development projectLong term development project Population growthPopulation growth

Political instability means foreign investorPolitical instability means foreign investor

go outgo out Foreign aid (IMF,WB,CSF,KERRForeign aid (IMF,WB,CSF,KERRL,11,3,2,7bill $ respectively)L,11,3,2,7bill $ respectively)


9/17

ContCont

COSTPUSH INFALTIONCOSTPUSH INFALTION:: CostCost

increases due to decreaseincreases due to decrease in supplyin supply

Devaluation of currencyDevaluation of currency Profit inflationProfit inflation

Wages increasesWages increases

Taxes increases by governmentTaxes increases by government Interest rate decrease cheap moneyInterest rate decrease cheap money


10/17

Impacts of InflationImpacts of Inflation

Deprive consumer purchasing powerDeprive consumer purchasing powerspecially fixed income groupspecially fixed income group

Hurt poor and benefit to rich create gap.Hurt poor and benefit to rich create gap. Resource diversion from industry to luxury.Resource diversion from industry to luxury.

Stimulate speculationStimulate speculation

Disrupt smooth function of priceDisrupt smooth function of pricemechanismmechanism


11/17

Cont../Cont../

Reduce saving discourageReduce saving discourageinvestmentinvestment

Outflow of capital import priceOutflow of capital import priceincreasesincreases

Export decreases due to high costExport decreases due to high costDebtor gains and creditor losingDebtor gains and creditor losing


12/17


13/17

Monetary policy includesMonetary policy includes

Open market operationOpen market operation

Credit rationingCredit rationing

Varying reserve requirementVarying reserve requirement

Consumer credit regulationsConsumer credit regulations

Varying margin requirementVarying margin requirement


14/17

Fiscal policy includesFiscal policy includes

Changes in taxationChanges in taxation

Government expenditureGovernment expenditure

Public borrowingPublic borrowing

Blanched budget changesBlanched budget changes

Control of deficit financingControl of deficit financing


15/17

Alternative measuresAlternative measures

Price support policyPrice support policy

Provisions of subsidiesProvisions of subsidies

Utility stores to fulfill the demandUtility stores to fulfill the demand Direct control on price through differentDirect control on price through different

societysociety

Rationing of goods in acute emergencyRationing of goods in acute emergencyand holding of Friday and Sunday bazaarand holding of Friday and Sunday bazaar


16/17

ConclusionConclusion

Although inflation is natural when itAlthough inflation is natural when itbecome uncontrolled ,it greatly hurt thebecome uncontrolled ,it greatly hurt thefixed income group. Corruption andfixed income group. Corruption andgovernment spending is the main reasongovernment spending is the main reasonof inflation in country like Pakistan so weof inflation in country like Pakistan so wecan control it by strong check and balancecan control it by strong check and balance

on prices at government and also on theon prices at government and also on thesociety level.society level.


17/17

ThanksThanks

FeamanAllahFeamanAllah

causes and impacts of inflation on businesses

Documents