Abstract: Inflation is a plague, which characterized the economy of many developing countries especially, in the current global economic meltdown. This effect influenced cases of both explainable and unexplainable shortages in production inventory. In this study, the management of inventory under twin limiting situations of inflation and shortages were considered. Also, presented was a model for determination of economic lot size, which includes the two conditions, time value of money and comparative study of corresponding cost implications using numerical example to illustrate the developed model.