Causes of Inflation in Pakistan
Chapter 1 Introduction & Background 1
1.1Measures Of Price Inflation41.1.1Wholesale Price Index41.1.2Consumer Price Index51.2Implicit GNP Price Deflator51.2.1Implicit Price Deflator Of Total Domestic Absorption51.3Unit Value Index Of Imports61.3.1Index Of Retail Price61.3.2The Tax Price Index (TPI)81.4Problems And Costs Of Inflation91.4.1Arbitrary Redistribution Of Income101.4.2Breakdown Of Adjustment Mechanisms111.4.3Effect On Company Accounting111.4.4Failure Of Government Intervention111.4.5Problem Of Domestic Price Rises121.5Causes Of Inflation131.5.1Too Much Spending – Demands Pull Inflation131.5.2Cost Push Inflation141.5.3Too Much Money – The Monetarist Explanation181.6Problem Statement211.7Scope And Limitations211.8Objectives Of The Study22Definitions Of Terms23
Chapter 2 Literature Review 25Chapter 3 Research Methodologies 33
3.1Purpose Of The Study343.2Type Of Investigation343.3Study Setting353.4Time Horizon353.5Research Instruments35
Chapter 4 Interpretation & Analysis Of Data 37Chapter 5 Conclusions & Recommendations 53References 60
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Causes of Inflation in Pakistan
EXECUTIVE SUMMARY
Generally, monetary growth, public policy, administered prices, rise in the prices of imported goods, inflationary expectations and output growth are termed as thedeterminants of inflation in Pakistan. One group of economists considers inflation amonetary phenomenon, while the other assigns more weight age to rise in administered prices and increase in prices of imported goods as determinants of inflation.
Causes of Inflation
The GDP growth has a significant dampening effect on inflation. This sector recorded ameager growth of 2.5 per cent per annum during last five years which is even lower than3.0 per cent population growth rate. The effect of poor agriculture growth is also evidentfrom the fact that 'food group (weight 49.35 per cent), in CPI recorded 107 per centinflation from 1990-91 to May, 1997 as compared with over all inflation of 97.57 percentand non- food inflation of 88.0 per cent during the same period. Prices, however,increased soon after the government's announcement. Inflation in Pakistan is claimed to be a monetary phenomena. Pakistan saw a very high rate of monetary growth between1990-91 and 1995-96, averaging 18.8 per cent per annum. Inflationary Gap=monetarygrowth-(real GDP growth +price inflation) The National Credit Consultative Council(NCCC) has approved a monetary growth rate figure of 14 per cent for 1997-98.Increases in the world price of imports in the world market and a 40 per centdevaluation / depreciation in the Pakistan rupee from January 1991 to June 1997 fuelled2
Causes of Inflation in Pakistaninflation to unmanageable levels. The tax to GDP ratio in Pakistan is only 13 to 14 per cent, leaving the government short of funds to run the machinery of the government. Thegovernment has to borrow to service the existing debt. The government has to competewith the private sector and offer attractive rates of return on its securities.
Consequences of inflation
Almost all targets, such as GDP growth, price inflation, bank borrowing, trade deficit, budget deficit, are violated. A low saying rate in the country is also one of the causes of rising inflation. In the wake of 14 per cent inflation and an average 10 per cent depositrates, depositors are getting negative real rates of return on their deposits. Trading further raises the price level by manipulation of the market through hoarding and black marketing by the rent seekers while production eases the upward pressure on price levelin an economy. Inflation expedites this trend further. Devaluation is also one of the consequences of inflation. Due to double digit inflationPakistan has been caught in the vicious circle of devaluation (devaluation inflation loss of competitiveness again devaluation).3
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Inflation Causes in Pakistan
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