This study is to identify the potential determinants of inflation rate in the presence of ARCH effect for Pakistan using monthly data over 2001:M1-2015:M12. These variables based on the theory of price mark-up model with non-nested theorybased model. It comprises two applications of econometric modeling and issue. Dynamic analysis for inflation is without ARCH effect through time series analysis like co-integration, model selection, general to specific methodology. Dynamic analysis shows that inflation to be dependent upon its third lags, money supply, second lag of import prices, petrol price, second lag of petrol price and tax has a significant effect. Financial time series analysis through some properties by considering ARCH effect, ARMA lag selection and GARCH (1, 1) model is applied to estimate conditional volatility of inflation series. High volatility persistence for inflation is confirmed. The results show that condition mean equation has pointing out that inflation depends upon its lag value, petrol price and taxes has significant effects, but money supply and import prices do not determine the inflation. Results of the study may be helpful for policymakers in designing the policy to meet the various macroeconomic goals effective and efficiently. Supervisor:- Dr. Saud Ahmed Khan