RISE OF INFLATION IN PAKISTAN

  Inflation seemed to be a chronic problem in many parts of the world. There is a wide spread recognition that inflation results in inefficient resource allocation and hence reduces potential economic growth. Inflation imposes high cost on economies and societies; disproportionately hurts the poor and fixed income groups and creates uncertainty throughout the economy and undermines macroeconomic stability. High inflation has always penalized the poor more than the rich because the poor are less able to protect themselves against the consequences, and less able to hedge against the risks that high inflation poses. Lowering inflation therefore, directly benefits the low and fixed income groups. Pakistan has witnessed a low inflation environment for the last several years but experienced a sharp picked up last year at 9.3 percent[1] .

  Among the more emerging developments during fiscal year 2005-06 was the significant abatement of price pressure over the course of the year. For the first ten months of the current fiscal year (July 2005 to April 2006), all important barometers of price pressure in the economy indicate a steady deceleration in inflation. Hence, inflation as measured by the Consumer Price Index (CPI) declined from 9.0 percent in the beginning of the fiscal year, to a period-average of 8.0 percent in July-April 2005-06. The salutary trend in prices is reflected in the steeper fall in year-on-year inflation, which declined to 6.2% in prices in April 2006 compared to April 2005 – its lowest level in 23 months. On current trends, and barring any adverse shocks, it is expected that inflation, as measured by CPI, would be within the target of 8.0 percent set by the government for the full year. This development with regard to prices is also reflected in the other measures of inflation used in Pakistan, namely core inflation, the Wholesale Price Index (WPI) as well as the Sensitive Price Index (SPI)[2].

 The government’s tight monetary policy arrested the uptrend of core inflation and thus declining the core inflation pressured on the economy. Pakistan witnessed higher inflation for many reasons. The higher inflation trend in Pakistan over the last two years has been the outcomes of pressure that emanated from demand and supply sides. Four years of strong economic growth has given rise to the income levels of various segments of the society. The rising level of income has increase the domestic demand and yields the rise in the prices of essential commodities. On the supply side the pressure emerged from a verity of factor, like increase in support price. Unable to produce the targeted level and mismanagement to supply yields the increase or upward trends in the prices[3].

 The government has to strive very hard to bring down inflation to seven present which the State Bank of Pakistan has indicated in its statement on monetary policy for the second half of this financial year ending June[4]. The causes of the consumer price inflation are too many, beginning with the basic and other food items like mutton, beef, chicken, eggs and milk. They include the house rent which has a large share in the CPI and rising transport costs.

 The state Bank has been very keen in listing almost all the factors which increases the inflation. The Bank has been more candid than before and its statement shows that while many sectors show the rising trends in inflation, real relief is coming forth from almost no sector. And that leaves the people with no choice. It is a kind of all-embracing inflation[5].

  High inflation in Pakistan then is the product of a multi-dimensional process. It is the outcome of two economies, open and underground, working together with corruption and crime, which makes it difficult for the government or society to check. Above all, we live in a profit-oriented society where the consumer can never prevail over the capitalist or the market.

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1. Economics Survey 2005-06
2. Ibid.
3. Monetary policy 2005, Government of Pakistan.
4. Controlling Inflation by Sultan Ahmed the daily Dawn, 27 January 2005.
5. Ibid.

(Muhammad Aamer Shahzad)

 

 

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