The present study is aimed to investigate „what determine Inflation? An Investigation through Structural Equation Modeling‟ an empirical analysis from the economy of Pakistan. The empirical analysis has conducted by using the technique of Structural equation modeling (SEM) annual time series data is used for the periods from 1975 to 2017. Before estimation, the stationarity of the data is checked by the Augmented Dickey-Fuller (ADF) test. The ADF test finds that all the variables are stationary at first difference i.e. I (1), except inflation and investment. Before applying the SEM all the variables are transformed at difference except inflation and investment. Firstly unrestricted structural equation model (USEM) was estimated. The mostly coefficient of USEM has found to insignificant i.e. their probability value more than 50 percent. To remove the insignificant coefficient we are given these unnecessary coefficients the regression weight is zero for the purpose of getting significant results. Secondly, the restricted structural equation model (RSEM) is estimated. The estimated results reveal that; interest rate has a positive relation with exchange rate and industrial inputs prices, while negative relation with the price of equity and investment. Therefore the exchange rate, price of imports, price of exports and consumption have a positive relation with inflation while investment, loan, and output have a negative relationship with inflation. Finally the interest rate is not a significant determinant of inflation. Therefore the exchange rate and cost channel are responsible for the transmission mechanism of interest rate to inflation in Pakistan. To control inflation the policy of high-interest rate should be avoided. Supervisor:- Dr. Atiq-Ur-Rehman