Inflation in Pakistan

Topics: Inflation, Monetary policy, Money Pages: 16 (5371 words) Published: October 1, 2012
BS 2010
BS 2010

Submitted by Qanita Zakir
Submitted to Nighat Moin

Submitted by Qanita Zakir
Submitted to Nighat Moin

Inflation in Pakistan
Information Technology Department
Economics Report
Inflation in Pakistan
Information Technology Department
Economics Report

Types of Inflation3
Cost-push inflation4
Pricing power inflation4
Sectorial inflation4
Built-in inflation4
Causes of Inflation4
Excess money printing4
High Production Cost4
International lending and national debts4
Federal taxes5
Effects of Inflation5
Negative Effects5
Positive Effects6
How to Survive Inflation?6
Literature Review8
Inflation Impact on Economy By Rafia Ehsan8
Inflation and erosion of quality in Pakistan By Dr Humayun Dar9
Findings and Analysis10
Inflationary Factors in Pakistan10
Supply-side shocks10
Increased domestic demand10
Increase in net imports10
Rising trade deficit10
Fiscal policy remained expansionary10
Expansionary monetary policy11
Rising import prices11
Indirect taxes11
Price Indices in Pakistan11
Flaws in Measuring Inflation in Pakistan11
Graphical Analysis of Inflation from 2008 to 2012 Using CPI12


Pakistan has undergone a significant economic growth during last few years, but the core problems of the economy are still unsolved. Inflation remains the biggest of all these problems. The aim of this report is to find the determinants of inflation in Pakistan, its causes and measures to control it. In this report the literature review explains the view point of Rafia Ehsan and Dr. Humayun Dar who is an economist and PhD from Cambridge University in determining the causes of inflation and establishing links of different variables with inflation such as fiscal and monetary policies, unemployment, demand pull and cost pull factors that affect inflation. The report highlights patterns in Pakistan from 2008 to 2012, which reports the last five years as highly inflationary due to expansionary monetary policy and high oil prices. High international oil prices lead to increase in transportation charges as well as energy intensive industry products such as metal commodities. As producers pass on the increased costs to consumers, this leads to an increase in cost of Pakistani imports, which drives up inflation. The high levels of inflation reflect a volatile economy in which money does not hold its value for long. Workers require higher wages to cover rising costs, and are disinclined to save. Producers in turn may raise their selling prices to cover these increases, scale back production to check their costs (resulting in lay-offs), or fail to invest in future production. Many such problems have been, and still are, being faced by Pakistan. The factors leading to high levels of inflation include deficit financing, foreign remittances, foreign economic assistance, increase in wages, population explosion, black money, prices of imported goods, devaluation of rupee, etc. Government actions are not useful, as we are not seeing any difference in the inflation rates.. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.


Inflation refers to a rise in prices that causes the purchasing power of a nation to fall. Inflation is a normal economic development as long as the annual percentage remains low; once the percentage rises over a pre-determined level, it is considered an inflation crisis. The term...
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