INFLATION

Inflation means a rise in prices of goods and services in an economy over a period of time. Inflation is caused by some demand side factors (Demand Pull Inflation) and supply side factors (Cost Push Inflation). TYPES OF INFLATION Demand Pull Inflation Cost Push Inflation Pricing Power Inflation Sectoral Inflation Fiscal Inflation Hyperinflation MEASURES OF INFLATION CPI WPI GDP Deflator TREND OF INFLATION
Year 1960's 1970's 1980's 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 CPI 3.3 11.9 7.5 12.66 10.58 9.83 11.27 13.02 10.79 11.8 7.81 5.74 3.58 4.41 3.54 3.1 WPI 2.6 13.5 7.1 11.73 9.84 7.36 16.4 16 11.1 13.01 6.58 6.35 1.77 6.21 2.13 5.6 SPI 12.59 10.54 10.71 11.13 15.69 10.71 12.45 7.35 6.44 1.83 4.84 3.37 3.8

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

4.6 9.3 7.9 7.8 12 20.8 11.7 14.1 10.8

7.9 6.8 10.1 6.9 16.4 18.2 12.6 23.3

6 11.1 7.8 9.2 14.2 22.7 13.2 18.2

REASON S The main reason of inflation is the increase in the prices of regular items, such as wheat, sugar, ghee and other items. The government has totally failed to control the prices of these items. Petrol and gas price hikes is the second main cause. When oil and gas prices are increased it affects prices of its complementary goods too. Such as transportation fares, etc. Thirdly, most of the industries are closed due to government policies creating unemployment. Increase in excise duties and the increase in the utility tariffs Rising international commodity prices are also playing a role in intensifying domestic inflationary pressures. . Large government borrowing from central bank to finance budget deficit. Currency depreciation Production losses due to power and infrastructure problem During current period food has remained the major driver of the inflation on the back of major supply disruptions owing to devastating floods at the beginning of FY11 damaged the crops and disrupted the production and supply chain, worsening inflationary pressures Food inflation is persistently rising and recorded at 18.4 percent as against 12.0 percent in the comparable period of last year.

 Non-food component witnessed an increase of 10.4 percent in this period which shows some adjustment against 11 percent in the comparable period of last year. EFFECTS OF INFLATION Inflation affects the diverse sectors of the economy Effects on production Monetary Policy Social Sector Political environment

And effect different classes of people (Debtors & Creditors, Salaried Class, Wages earners, Fixed income group, Investors and shareholders, Businessmen, Agriculturists as well). REMEDIES Inflation is one of the barriers on the way of progress. In Pakistan, it has grasped the major part of the population. It needs to be controlled by strategic planning. 1. Domestic production should be encouraged instead of imports; 2. Investment should be given preference in consumer goods instead of luxuries, 3. Agriculture sector should be given subsidies, 4. Control budget deficit 5. Reduction in public borrowings 6. Adoption of strict price control 7. A strong monitoring system should be established on different levels in order to have a sound assessment of the process at every stage. 8. The major increase in the prices is because of the increasing prices of oil (as increased prices of oil increase the cost of production), steps should be taken to control the oil prices. 9. Effective economic planning to enhance efficiency, productivity in the real sector (commodity sector) require for the sustainable growth in the supply of goods and services in the economy.