food inflation

Topics: Inflation, Monetary policy, Supply and demand Pages: 15 (3990 words) Published: April 9, 2014
Pakistan Economy

Term Paper

FOOD INFLATION

SUBMITTED To: Madam Momna Zubair

SUBMITTED by: Summaiya Yasmin
Irum Shahzadi
Summera Maqbool
Shumaila Zareen
Sehrish Tabassum

SUBMISSION DATE: 16-5-2008

International Islamic University Islamabad

2008.

Acknowledgement

We would like to take this opportunity to pay our humble attitude of Almighty ALLAH who enabled us to complete our term paper. We wish to express our gratitude to our honored teacher, mam Momna Zubair, from her sympathetic gaudiness. It is a pleasant duty to acknowledge her numerous valuable suggestions concerning the methodology and organization of this research.

At last but not at least is for all our ever-loving friends without mentioning them by names. We wish to thank them all.

Contents:

Topics Page no

Introduction………………………………………..(2) Literature review……………………………………(5) Variables causing food inflation……………………(6) Monetory Factors……………………………(6)
Structural Factors…………………………...(6)
Basic Elements of the Model……………………..(7)
The Variables in the light of current senerio…….. (9)
A fact……………(14)
Policy Implications……………………………....(14) Conclusion………………………………………(15) References………………………………………(16)

Introduction:

Inflation is a burning issue in Pakistan. It is generally felt that for several years Pakistan has had a double-digit inflation. The public sector has used a mix of policies to control inflation, and it is also held responsible for its creation.. The consumer price index (CPI) increased over 11 percent in 1981-82, and over 12 percent in 1990-91.

Similarly, sensitive price index (SPI) increased over 15 percent in 1981-82, and over percent in 1990-91. After a period of low inflation, the inflation rate in Pakistan accelerated starting in late 2003.

Following the 1998/99 crisis, inflation was reduced to below 5 percent by 2000 and remained stable through 2003. With monetary growth picking up, inflation followed and increased sharply in late 2003, peaking at 11 percent year-on-year in April 2005. Average annual inflation appears to have stabilized around 8 to 9 percent by September 2005. The acceleration of inflation also coincided with two increases in the wheat support price in September 2003 and in September 2004.

As for as the factors responsible for surging food inflation it is important to note that monetary factors are the main drivers of inflation in Pakistan, while the wheat support price affects inflation in the short run. The standard monetary variables (money supply, credit to the private sector),the exchange rate, as well as the wheat support price as a supply-side factor. Monetary factors have played a dominant role in recent inflation, affecting inflation with a lag of about one year. Increases in the wheat support price influence inflation in the short run, but not the price level in the long run. Furthermore, the wheat support price matters only over the medium term if accommodated by monetary policy.

Some Structuralist models assume that such factors have to be accommodated by monetary inflation is driven by developments and bottlenecks on the real side of the economy. Food prices, administered prices, wages, and import prices are considered sources of inflation. Increasing food prices are considered to result from inelastic supply on account of concentrated land ownership.

Structuralist models assume that such factors have to be accommodated by monetary policy makers because they are determined outside the monetary sphere. Non-food inflation is also determined by money supply, real GDP, import prices, and...


References: Chaudhary M.Aslam, Ahmed Naveed (1995) “ Money Supply, Deficit And Inflation In Pakistan” , “ The Pakistan Development Review” , part 3, 34:4 pp. 945-956.
RNCOS (2007) , “ Pakistan Continue To Witness Food Inflation”, food industry research report.
Exacutive summary, “price trends” Pakistan Economic Survay (2007-08), Pp.45-48
Khan, Amir (2008), “Cheaper Rupee To Push Food Prices Further”, The Dawn, Friday,25 april 2008
Gira, Nina (2004) , “ Food Insecurity Under Structural Adjustment In Pakistan”, Asian Survay, vol.44 , No. 3, pp. 358-368. University Of California.
Mohsin, Axel (2005) , “Inflation In Pakistan: Money Or Wheat” , session II , Middle East Central Asia Department, washington DC USA.
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