Inflation and its main Causes in Pakistan:
By Fida Karim
Inflation is the general increase in the price of
good and services in an economy over a period of time. It is an economic term
which means that now you have to spend more in order to get same things. In
simple words it shows the increase in price of commodities and increases cost
of living. The inflation rate tells us about the percent increase or decrease
in price during a specific period of time. The percentage tells us about how
the prices change over that period of time.
Inflation is an important indicator which represents the economic stability of an economy and it is considered to be an integral component of macroeconomic policies.
Low inflation affects the GDP growth rate and High inflation affect the consumer purchasing power of consumers especially the poor. Pakistan experienced the highest inflation rate in 1973 when inflation rate reaches record high of 38 percent due to oil shocks and again in 2008-09 inflation reaches 18% during the global Recession.
Next the question arises, if inflation is bad then it must be or it should be equal to or approaches to Zero. The answer is No because economist consider a moderate inflation of 2-6 percent desirable and it is also a useful tool for production side. .
Although one can count many reason for the upward trend of inflation in Pakistan but there are mainly four factors which have caused the inflation to increase in the PTI led government since July 2018.
Inflation is an important indicator which represents the economic stability of an economy and it is considered to be an integral component of macroeconomic policies.
Low inflation affects the GDP growth rate and High inflation affect the consumer purchasing power of consumers especially the poor. Pakistan experienced the highest inflation rate in 1973 when inflation rate reaches record high of 38 percent due to oil shocks and again in 2008-09 inflation reaches 18% during the global Recession.
Next the question arises, if inflation is bad then it must be or it should be equal to or approaches to Zero. The answer is No because economist consider a moderate inflation of 2-6 percent desirable and it is also a useful tool for production side. .
Although one can count many reason for the upward trend of inflation in Pakistan but there are mainly four factors which have caused the inflation to increase in the PTI led government since July 2018.
(a) Money supply/Money Growth:-
The printing of money and the supply of money is done by the Central bank of Pakistan i.e. The State bank. The more the money is circulated the higher is the price of goods and commodities. In developing countries like Pakistan, the central bank is not an independent entity so Government forces the Central bank to print more money in order to meet its own expenditures. Thus there is more supply in the money market and prices go up.(b) Exchange rate devaluation and import :-
Pakistan as a developing country mostly import Raw materials and oil to fulfill its domestic needs However due to the massive Rupee depreciation in Recent month and due to IMF bailout package Rupee records a major devaluation in Pakistan history .Exchange rate shows the Strength of currency of a country while inflation shows the prosperity of citizen and stability of prices in country. Researches and Studies show that Exchange Rate devaluation has a significant impact on the domestic inflation of Pakistan.
(c)
Increase in Fuel Prices, Energy Prices
and Gas prices:-
Due to the Depreciation of local currency the imported goods become relatively expensive when converted in Pakistani Rupee so this directly affects the consumers secondly due to the bailout package with the IMF; the government has imposed large taxes on industries and industrial output. Thus the above both factor have contributed to increase in Energy Prices and oil prices.
The petrol price increase up to 22.5 pc and similar increase in price was observed in oil, gas which shows a phenenomonial change in 2018-2019.
and Gas prices:-
Due to the Depreciation of local currency the imported goods become relatively expensive when converted in Pakistani Rupee so this directly affects the consumers secondly due to the bailout package with the IMF; the government has imposed large taxes on industries and industrial output. Thus the above both factor have contributed to increase in Energy Prices and oil prices.
The petrol price increase up to 22.5 pc and similar increase in price was observed in oil, gas which shows a phenenomonial change in 2018-2019.
(d) Domestic supply shocks :-
This include Natural disasters and artificial shortfalls that led to increase in prices ogf goods and commodities , Floods, Drought , Crop pests can all raise the price of domestic good and often that goods which are necessary for poor .Current statistics:-
Inflation has again entered into double digits after six years. The consumer price index (CPI) for the month of October 2019 was rewarded as 11.04 percent.
(According to Pakistan Bureau of Statistics)
The international monetary fund has estimated that inflation will remain around 12-13% in the current fiscal years.
CONCLUSION: -
In sum, Inflation is a Multi-source problem. It has been recorded high in some years and moderate on most of the years but over the period of time it was moderate. The most affected people from this phenomenon are the poor people whose real income continue to decrease due to continuous increase in inflation, so the government should take steps in order to give Relief for the poor people and continue to take structural measures in order to make it low in order facilitate poor and vulnerable persons of own society .
