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 fell 7.1% over the selected period — from 12.60% to 11.70%.
▸M2 Money Supply rose 26.4% over the selected period — from 34.84T PKR to 44.04T PKR.
▸Over this period, CPI Inflation and M2 Money Supply showed little consistent relationship, moving in the same direction (correlation coefficient: 0.11).
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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