SWELLING OF GUMS CAN CAUSE GINGIVITIS WHICH CAN LEADS TO PERIODONTITIS. TREATMENT & CAUSES.

SUDDEN INFLATION CHANGES IN PAKISTAN & WHAT CAUSES THIS IN OUR COUNTRY?

What is Inflation?

Unexpected inflation is the inflation experienced that is above or below that which was expected. Unexpected inflation affects the economic cycle. It reduces the validity of the information on market prices for economic agents. Over the years, unexpected inflation impacts employment, investment, and profits.

What are the causes?

Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.

What are the 3 main causes of inflation?

Causes of inflation

• Demand-pull
• Cost-push
• Inflation expectations

Inflation in Pakistan Raises By howmuch ?

After remaining relatively low for a quite long time , the inflation rate 

accelerated in Pakistan starting in 2003. Following the 1998-99 crises , 

the inflation was reduced to below 5 % by 2000 and remainined stable through 2003.

Tight  monetary policy and combined with fiscal consolidation appears to have contributed to this low inflation rate environment. With monetary growth picking up, inflation grows and sharply in 2003, peaking at 11 percent. Year on year in April 2005, Average Annual inflation stablised around 8-9 percent by september 2005 and has receded somewhat since then.

    Controlling inflation is high priority for policy makers, high and persistent inflation is a regressive tax and adversely impacts the poor and economic development. the poor have little options to protect themelves from sudden inflation,. they hold very few real assests and equity and their savings are typically in the orm of cash or low intrest bearing deposits. thus, poor is most vulnerable to inlation as it erodes its savings. moreover high and volatile inflation has been found determental to growth.

Inflation can get a bad rap. For instance, some people think inflation makes everyone worse off. But it turns out that there are both winners and losers from inflation. In general, if you owe money that has to be paid back with a fixed amount of interest, you are going to benefit from unexpected inflation. On the other hand, if someone owes you money, when there is unexpected inflation the money you are paid back won’t be worth as much as the money you loaned out.

Unexpected inflation arbitrarily redistributes wealth from one group to another group, such as from borrowers to lenders. When people decide to borrow money or lend money, they often consider what they think the rate of inflation will be. When the rate of inflation is different than anticipated, the amount of interest repaid or earned will also be different than what they expected.

• Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out.
• Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

  [Can you walk me through that?]

  Unanticipated disinflation or deflation, when the inflation rate is lower than it was expected to be (or even negative), has the opposite effect as unanticipated inflation: lenders are helped and borrowers are hurt.
  Lenders are helped by unanticipated disinflation or deflation because the money they get paid back has more purchasing power than the money they expected it to be when they loaned it out.
  Borrowers are hurt by deflation in particular because they have to pay back their debts with money worth more than the money they borrowed in the first place!
  Most policies that target inflation are aimed at maintaining small and predictable rates of inflation. Inflation that is too close to zero runs the risk of becoming negative, and deflation becomes a possibility. Deflation has a very damaging impact on an economy and is associated with particularly severe recessions and depressions. If you hear about policymakers talking about "lowering inflation," their objective is slowing down the rate of inflation (in other words, disinflation), not deflation.

Common misperceptions

• A common misperception is that inflation is bad for everyone (who likes more expensive stuff?). But this is not the case. Inflation reduces the value of money. Because of that, people who have borrowed money benefit from a higher inflation rate when they pay the money back. The interest rate that a borrower pays is effectively lower thanks to inflation.

• Another common misperception is that disinflation and deflation are good for everyone (who doesn't enjoy cheaper stuff?). The problem is, deflation increases the purchasing power of money. People who have borrowed money are paying back that loan with money that is effectively worth more than the money they borrowed. Deflation effectively increases the interest rate that a borrower pays.
• A very common misperception is that inflation should always be avoided. Deflation has such a destructive impact on an economy that most policymakers agree that avoiding deflation is a far more important objective. As a result, the goal of policymakers is not zero inflation, but small and predictable inflation rates.
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Economists sometimes like to distinguish inflation into expected and unexpected inflation. Steady, predictable inflation is a feature of many developed economies and at low levels (around 3 percent for the United States) isn’t considered a cause for concern.  In fact, most of the costs listed below for expected inflation are really only a problem at high levels of inlfation.  Unexpected inflation is more of a problem, particularly for developing countries with volatile economies.

Costs of expected inflation

1. Reluctance to hold money- Holding money as cash doesn’t earn an interest rate, and with the presence of inflation actually decreases in value over time. With inflation, people are reluctant to hold money and thus make more frequent trips to the bank (this is sometimes referred to as shoeleather costs)
2. Increased price changing- Inflation causes firms to change their posted prices more often, the logistics of which can be costly. This is sometimes referred to as menu costs in reference to restaurants having to print new menus.
3. Greater variability in relative prices- If firms facing menu costs don’t change prices frequently, a high rate of inflation will cause variability in real prices.  When inflation causes variability in relative prices, it leads to microeconomic inefficiencies in the allocation of resources.
4. Distortions in the way taxes are levied- The tax code doesn’t take into account inflation so the way tax liabilities are assessed is altered from the economically efficient level.
5. Inconvenience- Undertaking economic transactions in a world with changing price levels in inconvenient and inefficient.
   

Costs of unexpected inflation

1. Arbitrarily redistributes wealth among individuals- For example loan agreements have an interest rate that has taken inflation into consideration. If inflation is higher than expected, the borrower is better off because he/she is repaying the fixed loan with less valuable dollars. The opposite situation is true if inflation is lower than expected.
2. Hurts individuals on fixed pensions and those bound by fixed contracts- Similar to the borrower/lender example, unexpectedly high or low inflation can hurt one party in a fixed long term contract or payment system, thereby discouraging their use.