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 16.5% over the selected period — from 11.50% to 9.60%.
▸M2 Money Supply rose 90.1% over the selected period — from 23.31T PKR to 44.32T PKR.
▸Over this period, CPI Inflation and M2 Money Supply showed a moderate relationship, moving in opposite directions (correlation coefficient: -0.59).
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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