Issues of inflation

Current situation In Pakistan

One of Pakistan's major problems is inflation. Pakistan has an extremely high inflation rate.
Pakistan's inflation rate was measured at 9.5% recently. The average annual rate of inflation over the
observation period of 1960–2021 was 8.2%. At the start of 2022, a product that cost Rs 100 in 1960
now costs Rs 11,307.

Issues

1. The rise in food costs in Pakistan is a major contributor to inflation. It might be caused by the
agricultural sector's lower production or by a lack of commodities and services in the
economy. Food inflation affects the poor more than the wealthy because the latter spend a
larger percentage of their income on food than the former.

A big contributor to Pakistan's rising food inflation is the Pakistani Rupee's depreciation. As a
net importer of food, Pakistan saw an increase in the price of food due to the devaluation of the
rupee. Due to the devaluation, the cost of all imported items, including crude oil, soybeans, chicken
feed, fertiliser, seeds, and pesticides, would increase.

The cost of manufacturing has been severely impacted by the devaluation of the exchange rate and
the global increase in oil prices. The price of finished goods is directly impacted by the increase in
the cost of major inputs such as seed, fertiliser, pesticides, agricultural machinery, and
transportation.

The rise in oil prices is a major factor in rising food prices. Food transportation over long distances
consumes more fuel. Oil price increases drive up transportation expenses.

Heavy rains and flooding in many parts of Pakistan have badly affected crop yields creating food
insecurity in the country. Rains have damaged cotton, dates, chilies, and other vegetable production.
About 70% of onion production in Sindh has been affected by floods. This will lead to a shortage and
a rise in the price of commodities. 

In several areas of Pakistan, heavy rains and flooding have severely reduced crop harvests, leading to
food insecurity there. The output of cotton, dates, chilies, and other vegetables has been harmed by
rain. Sindh's onion production has been impacted by flooding to a degree of over 70%. As a result,
there will be a shortage and a rise in the cost of commodities.

2. Cost push inflation effects economic growth in Pakistan more. cost push occurs when the
supply of goods and services changes but demand remains same.

Inflation in Pakistan is expected to reach around 23 percent in FY23, reflecting flood-related

disruptions to the supply of food and other goods, higher energy prices, and difficult external
conditions, including tighter global monetary conditions. The Update shows that the high inflation
will disproportionately impact the poor.

Inflation is a significant issue in Pakistan and has an impact on many aspects of people's daily lives,
including income, purchasing power, literacy rates, money supply, etc. These factors all have a
different impact on Pakistan's economic growth, which in turn has an impact on the development of
the nation.
 3. According to historical trend analysis, Pakistan's inflation has a direct negative impact on the
expansion of the GDP and the manufacturing sector.
Question
1. What are the main reasons behind inflation?
Articles
1) Determinants of Recent Inflation in Pakistan
2) The determinantes of food price inflation in Pakistan: the econometric analysis.
3) What determines inflation in Pakistan.
4) What explains the current high rate of inflation in Pakistan.
5) Sources and impacts of inflation in pakistan

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Question
2. How inflation effect economic growth?
Articles

1) Does Inflation Affect Economic Growth? The case of Pakistan

2) Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan
3) Inflation and economic growth nexus.
4) Impact of inflation on economic growth of pakistan
 5)

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1

DETERMINANTS OF RECENT INFLATION IN PAKISTAN

Abdul Aleem Khan, Syed Kalim Hyder Bukhari and
Qazi Masood Ahmed1
Summary
Key issues
Identification of main determinants of in recent inflation in Pakistan. This paper evaluates
the role of different factors such as government sector borrowing, demand relative to
supply, private sector credit, imported inflation, exchange rate, total tax revenue of the
government, adaptive inflation expectations and wheat support price in explaining inflation.
Methods and databases used
Econometric framework focuses on identification of determinants of inflation. Using data
from the 1972-73 to 2005-06 period, applying ordinary least square method and verifying
results through Breusch-Godfrey Serial Correlation LM and Augmented Dickey-Fuller tests.
Key results
Most important determinants of inflation in 2005-06 were adaptive expectations, private
sector credit and rising import prices. Whereas, the fiscal policy’s contribution to inflation
was minimal.
Implication of results
Based on our study, it can be said with confidence that while the expansionary monetary
policy did help to ensure GDP growth was promising, it also contributed to an increase in
consumer prices. The extraordinary increase in the supply of "loose credit" to the private
sector was a major factor in the disruption of the pricing mechanism. Money was practically
always available, which encouraged collectors and speculators. The importance of adaptive
expectations then increased as consumers began to anticipate higher prices in the future
due to the apparent limitlessness of land prices, housing rentals, and food prices.
Research gap
the methodology for modern dimensions by giving special emphasis to the impact of fiscal
and monetary policies on prices and inflation was not discussed in previous studies. This
research gap is filled in this study.

Does Inflation Affect Economic Growth? The case of Pakistan

Summary
Key issues
Impact of inflation on GDP growth of Pakistan. Whether it encourages or hurts the economic
growth.
Methods and databases used
Annual time-series data for the period 1972-73 to 2009-10 have been taken and analysis is
made by employing the method of Ordinary Least Squares (OLS). This study employs simple
descriptive statistics and regression analysis to perform the task.
Key results
A negative and significant inflation growth relationship has been found to be existed in the
economy of Pakistan.
Implication of results
The results of the study show that prevailing inflation is harmful to the GDP growth of the
economy after a certain threshold level. Based on the descriptive and econometric analysis,
we may suggest to the policy makers and the State Bank of Pakistan to restrict the inflation
below the 7 percent level and to keep it stable. persistent increase in the general price level
hurts the economic growth. Level of inflation must be kept below 7%.
Research gap
Keeping moderate and stable inflation and maintaining price stability will ultimately be the
best policy recommendation to stable and sustained economic growth of the economy,
which is the research gap covered in this study as previous studies didn’t find best policy
advice.

DOES INFLATION MATTER FOR SECTORAL GROWTH IN PAKISTAN?

An Empirical Analysis
IMRAN SHARIF CHAUDHRY, MUHAMMAD AYYOUB and FATIMA IMRAN*
Summary
Key issues
influence of inflation on Pakistan's sectors growth. three principal sectors (i.e. agriculture,
manufacturing and services). to assess the growth rates of the various economic sectors in
Pakistan and to examine the impact of inflation on each sector and how this influence varies
depending on the nature of each industry.
Methods and databases used
study used annual time series data beginning in 1972 and ending in 2010. To investigate the
effect of inflation on sectoral growth, three models are specified. OLS is the estimation
technique employed.
The Durban Watson (DW) test statistic is used to determine whether there is any
autocorrelation among the regression errors. Iterative two-step least square approach with
autoregressive of order one specification has been used to estimate the model of the
expansion of the agricultural sector.
Key results
According to the study's conclusions, given the time-series data under investigation, there is
a trade-off between inflation and the expansion of the manufacturing sector. Pakistan's
economy suffers from inflation, which hinders the expansion of the manufacturing sector.
Implication of the results
statistically significant finding suggests that the manufacturing sector's expansion is
hampered by the general price level's ongoing increase. The report also identifies 9 percent
as a workable threshold level of inflation that will stimulate growth in this economic sector.
The study also reveals that inflation in Pakistan's economy has a favourable effect on the
expansion of the agricultural and service sectors.
Based on the empirical data of the study, it can be advised to keep inflation below a
particular level3, thus authorities and the SBP should concentrate on measures that help to
keep the inflation rate secure and below the level that may also aid for long-term economic
growth.
Research gap
The effects of inflation on Pakistan's remaining economic sectors, including mining and
quarrying, construction, and the distribution of electricity and gas, can also be examined
using the same framework. Which is not being examined in this study.