Broadly speaking, there are three main types of inflation which include demand-pull inflation, cost-push inflation and monetary inflation. Demand-pull inflation occurs when aggregate demand in the economy outstrips aggregate supply. It is a key finding of this paper that government borrowing from the central bank, which increases money supply, is the most chronic source of inflation. For almost last 9-10 years, the money supply (broad money – M2) has exhibited a compound annual growth rate (CAGR) of 14% whereas GDP at current prices increased only 9%. This at least theoretically is a good omen for the economy as it should have a positive impact on inflation as money supply would remain suppressed.

Source: The Express Tribune January 31, 2022 08:20 UTC