Universal Journal of Management and Social Sciences

Vol. 2, No.12; December 2012

Effects of Inflation on Standard of Living (A case study of Multan, Pakistan)
*Shahzad Farid1, Waqas Ali Khan1, & Imtiaz Ahmed Warriach2 1 M.Phil Scholar of Sociology, Bahauddin Zakariya University, Multan, Pakistan.2Assistant professor in Sociology Department, Bahauddin Zakariya University, Multan, Pakistan. *Farid420@rocketmail.com

Abstract
Inflation is simply rise in prices of commodities and devalues of money. It directly influences the standard of living. This paper dealt with the effects of inflation on standard of living in terms of expenses on food and non-food items, income, saving, loan and recreation. A sample of 200 male heads of families was taken from 2 towns out of 6 towns of Multan, Pakistan; using multistage sampling. Interview schedule was used as a tool for data collection. It was inferred from analysis of data that inflation did highly affect the middle class. People are compelled to get loan and to do over work, to fulfill their family expenditures due to the inflation. It was also concluded that standard of living of middle class people is decreased in 2011 as compared to 2010 due to the inflation because their expenses boomed up but there was minor increased in their income . Inflationary effects, at family level, can reduce, never eliminate, through keeping money circulation and abating saving during persistently intensifying inflation and renouncing to pay interest over money and goods, and income ought to be increased with the same ratio of rise in inflation. Key words: inflation, standard of living 1. Introduction Inflation is an inevitable property of any economy in the world. It influences every country, negatively as well as positively, whether it is developed or developing country as well. Zou, et. al. (2011) stated that inflation is an important factor leading to social and economic instability and disorder. It is one of the most largely observed and tested economic variables both theoretically and empirically. Its causes, impacts on other economic variables, and cost to the overall economy are well known and understood (Rizvi and Naqvi, 2010). Pakistan, being a developing country, could not overcome the continuously year to year climbing up inflation, and also its causes and consequences. After remaining relatively low for quite a long time, the inflation rate in Pakistan started to accelerate in late 2003 (Mohsin and Schimmelpfennig, 2006). The role of money supply appears significant in influencing food price inflation in Pakistan (Ashfaque and Qasim, 1996).which disturbed family budget as well as consumer’s purchasing power. People struggled in order to maintain their living standard but it slumped down gradually. In Pakistan, during the first four years of the new millennium, inflation remained under 5 percent and then jumped to 9.3 percent in 2004-05. It settled at 8 percent during 2005-06. The growth in wheat prices and strength of the exchange rate remained mixed. However, it seems that excessive money flows towards the public and private sector, along with the import price hike in 2003-04 and 2005-06, as well as the rise in price of wheat in 2003-04 and 2004- 05 pulled inflationary pressure at an alarming level (Farooq, H. Mian et al., 2008). Economic survey of Pakistan 2009-11 found that inflation rate stood at 14.1 percent during (July-April) of the current fiscal year 2010-11, as against 11.5 percent in the comparable period of last year, whereas, PIDE Inflation Expectations Survey for March 2011, expecting 15.5 percent inflation for April 2011 and 16.4 percent for May 2011.Results also indicate that expected inflation will remain about 17.0 percent for the next six months and 16.6 percent for the current year.

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Methodology Pakistan is the patriarchal country.. price hike etc. using multistage sampling techniques. et. Purpose of the study Many researches have been conducted on this issue but the researcher selected this unique topic because it draws a relationship between inflation and standard of living. December 2012 As far as Pakistan concerns regarding inflationary effects it has been experienced worst consequences reflected by poverty. Mahmood. Multan city was selected as universe. the fluctuation in the prices of goods and services has left several adverses on individuals’ life. differences in pre and post measurements on the same subject. Day to day increase in prices of commodities especially of non-food items like oil and gas snatch money from savings of consumers and uncertainty of prices.12. Therefore. To measure the standard of living.al. What are the effects of inflation on monthly household expenditures of families? III. Ismail. generate enthusiasm among people toward earn more and more therefore. food crises. What are the effects of inflation on family income? II. No. Over work and lack of recreation make them vulnerable particularly of middle class people and they almost fall into lower class. Which class (upper. Formulated hypothesis was tested through Paired t-test. Semi-Structured questionnaire was used to interview the respondents and SPSS for analysis of collected data. Before 2007. loan possibility. What are the effects of inflation on recreational activities? IV. Although. In Pakistan this is the most flaring issue and it is also the determinant of decreasing the rank of Pakistan in HDI. 53 (26. over time work bless money but it causes exertion and lethargic body that charge more expense on health instead upper class people hardly encounter any problem to inflation. income. A. The main research questions are as follow: I. The paired t-test is useful for analyzing differences between twins. recreation. The necessities particularly food items became inaccessible especially for labor. people prefer to work over recreation underestimating their health. 2. therefore. expenses etc. the core objective of this study is to explore the effects of inflation on standard of living. Such kind of fluctuations is one of them which brought many problems and enervating standard of living. (2010) found that the inflation brings negative impact while exports and investment brings positive impact on Pakistan economy and suggested that we should encourage a larger scale of export promotion activities to enhance the economic growth. During 2007 to 2008. Two towns: Shah-Rukne-Alam Town and Bosan Town were selected. Hafeez and Rasheed (2009) concluded that inflation causes poverty. A sample of 200 respondents was taken. only male heads of the families were taken as respondents because they own family economy. the inflation was not drastically increased but after 2007 there was an uncontrollable boom held in inflation. out of six towns of Multan. Thus. and differences between two treatments given to the same subject 2 .5%) from middle class and 20 (10%) from upper class. middle and lower) is comparatively more affected to inflation? 3. 2. representing as 127 (63. Rising inflation is shedding down living standard. both food and non-food items.Universal Journal of Management and Social Sciences Vol. the prices of goods consecutively grew but the price of services did not rise with the same ratio.5%) male heads of families from lower class. It will create numerous job opportunities which increase the per-capita earnings and standard of living. main objective is classified into some sub-objectives like measuring the saving.

7 1209937 698911 882837 371811 22829 13187 16657. Multan. middle class is much affected to inflation as compare to other classes.3 7015.3 29658 1016978. motorcycle. belong to middle class.2% and recreation dipped down only 7% in 2011 as compare to 2011. have to live as lower class people”. upper class people hardly encountered any obstacle for their living standard to disturb. Specifically. Muhammad et. December 2012 4.2 3 . In Pakistan.e. middle class living standard slumped down in 2011because of increasing household expenditures and negative real income. Chani. is not exceptional.2 10814. Incomes of both classes increased 2% but middle class loan rose 21. therefore. Upper class did not affect by inflation in term of household expenditures on food items (i. Table No. electricity. Although lower class was already being affected but “living standard of middle class is lowing down as much as people. al.3 675805.4 3619 1306. In such days of inflation the poor thinks it better to die than to live in such schizophrenic situation emerged among regular people.Universal Journal of Management and Social Sciences Vol. inflation deteriorates living standard but not for all.e. loan. gas etc) in both years (2010-11) because people belong to this class earned more than enough and spending on 5% of their income on food and non-food items and saving decreased only 0.3 2968 3581 1228 21314968 507222 651224 20156540 1065748. fish. mobile.4 3763 71 12471. (2011) argued that the inflation and trade openness have caused an increase in poverty in Pakistan. inflation particularly food inflation reducing the economic capabilities of people and they are rapidly falling into the ditch of poverty.4 25361.1 700913 407213 459613 165913 5519 3206.g. being a city of Pakistan. rice.4 Recreation (hours/month) 1146 57. I. With the passage of time increasing inflation became one of the major influential problems of Pakistan. saving and recreation (hours) in 2010 and 2011 years Classes Upper 2010 Middle Lower Upper Middle lower 2011 Variations in the selected determinants of living standard NonFamily Food food Loan Saving income items items 21388800 456066 593160 20339574 1069440* 22803. milk. chicken. 1 Distribution of classes regarding family income. Table. 2.12. beef.1 376936 454787 155956 5321. debtors. wheat. whereas. yet. vegetables etc) and non-food items (i. and is a contributing factor of motivation to earn more and more to cope with the phenomenon.3 6837 129 14224 112 588 29. mutton. Both middle and lower class household expenditures were more than their income in 2010-11 and to fulfill household expenditures they were getting loan and were doing over work respectively. household expenditures (food and nonfood items).3 15321.2 18746.3% and recreation slumped down 29% in 2011 comparing with 2010 which reflects that middle class people almost fell into the realm of the lower class. lower class loan rose only 3. car.1 32561. therefore. it blesses too. No. While its recreation became 32% less in 2011 as compared to 2010 because upper class people invest a lot of time for sourcing income.1 revealed the fluctuation of food and non-food items’ expenditures in 2010 and 2011.4 98.5% in 2011. fuel.2 1007827 1232425 812024 993549 573148 23253. e. Discussion Although.

at household level. Bashir. (2011) found that Inflation impact on various types of human beings like lender and borrower. December 2012 *Italic values represent the average per family variables e. therefore. inflation decreases standard of living through molding real income into loan and hard working into lack of recreational activities as well as lack of better social and physical health. No. therefore. Poensgen and Straub (1976) found that with fixed assets inflation causes losses and Scheve (2004) claimed that those individuals who own nominal assets and receive fixed incomes are likely to be more inflation-averse. with interest. gross domestic product. a hypothesis inferred to test as follow: Hypothesis: Middle class is more affected from inflation in 2011 as compared to 2010 in term of household expenditures. 2008). To survive. al. therefore. under stress of climbing up inflation. inflation imbalanced their economic condition because the value of money decreases and prices tend to increase consecutively. unless the inflation is anticipated and taken into account in setting the terms of the loan. while those who are debtors and pay fixed incomes are likely to be less so. wheat shortages. Khan et. entrepreneurs and harvesters.. Rapid increases in world oil and commodity prices. World economically stratified as three classes: lower. Owing to the minor or static income. fixed payment receiver. al. family income etc Such kind of deficit. they directed themselves toward loan which is over burden on their family economy because they have to pay back the loan. But the excessive money is blessing for 4 . Hypothesis Testing As it has been revealed in the previous analysis of classes that middle class is affected more than other classes. 5. stakeholders. F. to regulate themselves in dogging inflation mostly lower class people adopt another way: over time work. they have to get. The Upper class has access to a lot of material entities. (2011) claimed that the long run money supply. In nutshell. The P-Value in result indicates that middle class is highly affected from inflation in 2011 as compared to 2010. Table No. their basic necessities which have beyond their purchasing capacity. at least. get access to the subsistence. especially. Each class has its own particular economical condition. mounting fiscal deficits and increased bank borrowing are considered the main reasons for inflation in the economy (Saleem. 2 Samples Expenditures 2011 Expenditures 2010 Difference N 53 53 53 Mean 26882 22331 4551 S. Bach (1974) claimed that Inflation transfers real purchasing power from creditors to debtors.12.Universal Journal of Management and Social Sciences Vol. Due to the enervating value of money people purchasing power effects but while they are suffering in the problems they lumber to fulfill their whimsical desires like managing household expenditures. The excess of money into the market is one of the major causes of inflation.D 11557 9826 7835 SE Mean 1588 1350 1076 The above mentioned table depicts the result of middle class comparative expenditures in 2011 and 2010. A. they seem vivacious whereas the middle class is confined to purchase goods due to their mediocre economical condition and the lower class even. crush in such circumstances. salaried group. Fix income earners. upper and middle class. in middle class people undermined their power of consumption and made them vulnerable.g. et. Jabbar. which is a sign to dip down recreational activities. government expenditures and imports are contributed in raising consumer price index. belongs to middle and lower class. 2. Instead of getting loan. hardly.

7.1. Recommendations I. II. (1992) argued that inflation deteriorated the fixed income earners and income redistribution is in the favor of businessmen and shareholders. No. simultaneously. Economic Analysis Department. people belong to middle class. C.. Being static income earners. G. President Babangida's Structural Adjustment Programme and Inflation in Nigeria. Anyanwu. household expenditures and getting loan undermine the living standard of middle class.Anyanwu (1992). Bach. H. In such scenario. 7.12. M. G.al. therefore. and Abbasi U. 17. M. 48-55 John. Prompt and direct intervention of government on prices of food items resultantly providing safe guard to middle as well as lower class. Such inequality of growth produces imbalance in income and expenses therefore. it affects strictly middle class as compare to the upper class and lower class as well. Climbing up inflation. (1974). North. Minimum wage level should correspond to the expected inflation rate which would facilitate to maintain living standard of each class.. When money devalues. price hike disturb their economical stability. M. 3 pp. C . Tax structure should be of direct taxation system so that upper class should pay more than the middle and lower class. Conclusion Through the analysis of empirical data and hypothesis testing it is inferred that middle class got sharp affects from inflation in 2011 as compare to 2010. 6. 2.. (1980) claimed that middle class affects during inflation in term of their budget. Akmal. No deficit financing especially in the developing countries because in developing countries this type of financing is used in non-developmental expenditures which do not create employment in return it will not enhance family income.. P. Ghauri. over work become cause of more expenses. in term of increased household expenditures. III. families are compelled to get loan.24 5 . Who Gains and Who Loses? Vol. Journal of Social Development in Africa (1992).5. influenced their social and physical health brutally that invites more expenses on health and instead of solution. J. The employees’ family budget distorts having very slow growth of income. References Farooq. When the price of goods increase the expenses on good also increase which ultimately leads toward enhancement of family expenditures on goods but the wages and salaries enhanced very slowly as compare to the prices of commodities. December 2012 the industrialists or factory owners (whose business rely on debt). simultaneously value of income also decreases and prices of commodities unpredictably jumped upward while salaries or wages remains constant of employees. S. Ezirim.Universal Journal of Management and Social Sciences Vol. Lower class people try to adjust themselves into increasing inflation rate through hard working and loan which. IV. No. middle class people are drastically effects because their incomes remain static or grow slowly. L. et. Possessing less (comparing with the required necessities expenses) or fix income. (2008) explored that there is significance relationship between public expenditures growth and inflation. Inflation Monitor. Upper class do not affect from inflation because of its possession of excessive money. effort to earn more to regulate themselves within increasing inflation phenomenon which ultimately led them toward loan which brings over economical burden on their family. State Bank of Pakistan. 2008.

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