Inflation against the total level of M2 money supply circulating in the economy.
Inflation against the total level of M2 money supply circulating in the economy.
▸CPI Inflation rose 23.6% over the selected period — from 8.98% to 11.10%.
▸M2 Money Supply rose 88.3% over the selected period — from 23.34T PKR to 43.95T PKR.
▸Over this period, CPI Inflation and M2 Money Supply showed a moderate relationship, moving in opposite directions (correlation coefficient: -0.54).
Sources:: SBP EasyData
The quantity theory of money suggests faster money supply growth relative to real output tends to show up as inflation over time, with a lag — this comparison lets you see that relationship in Pakistan's own data.
Does more money supply always cause more inflation?
The relationship holds best over the medium-to-long term and depends on how fast the real economy is growing — money supply growing in line with output growth need not be inflationary.
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