The impact of inflation on both consumers and investment has always been significant. This is because rising prices cause a gradual loss of purchasing power over time. But depending on the status of the economy, inflation can rise and fall for a variety of causes.

IMPACT OF INFLATION

The poor and working classes in Pakistan are going through a difficult time. Poverty, inflation, and unemployment are all on the rise as a result of the terrible economic crisis. The prolonged economic crisis is hurting everyone, even the middle class. Fuel, electricity, food, and other necessities are now more expensive than ever before, outpacing the meager growth in monthly salaries, which is unable to keep up with the rising inflation.

CAUSES OF INFLATION

Demand-pull inflation

Demand-pull When the demand for certain goods and services exceeds the economy’s ability to meet those demands, inflation occurs. When demand exceeds supply, there is upward pressure on prices, resulting in inflation.

Cost-push inflation

The rise in prices caused by rising wages and material costs is known as cost-push inflation. These costs are frequently passed on to customers as higher prices for goods and services.

Money supply expansion

The total amount of money in circulation, which includes cash, coins, balances, and bank accounts, is defined as an increased money supply. If the money supply grows faster than the rate of production, inflation may occur, particularly demand-pull inflation, because there are too many dollars chasing too few goods.

Devaluation

A devaluation is a decrease in a country’s exchange rate that results in lower currency values.

Currency depreciation reduces the cost of a country’s exports, encouraging foreign nations to buy more of the devalued goods. The price of foreign products in the devaluing country rises as well, encouraging citizens to prefer domestic products over foreign imports.

Policies and procedures

Certain policies may also cause cost-push or demand-pull inflation. When the government offers tax breaks on specific products, it can increase demand. If demand outnumbers supply, prices may rise. Furthermore, stringent building codes and even rent stabilization policies may inadvertently raise costs and create an inflationary environment by passing those costs on to residents or artificially reducing the housing supply.

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