Inflation is defines as a situation where the general price level is persistently substantially moving upward in a country. In Pakistan the general price level is persistently rising since partition. The inflationary rise in price is usually measured by an index consumer price index. During the first seven years of 1990s, the average annual inflation rate remained in the double digits. The inflation rate was 11.4 percent in the 1990s. The inflation rate declined to 7.8 percent in 1998 and 5.7 percent in 1999. Due to the adoption of tight monetary policy and improved supply situation of essential items the inflation came down to 3.4 percent in the year 2000.
However during the year 2000-2001 the inflation rate as measured by the consumer price index increased to 4.7 percent. The main reason for the increase in the inflation are higher oil price and upward adjustment of gas and electricity tariffs, increase in the prices of essential food items such as sugar pulses and tea and by increasing in the communication and transport prices. So the government is trying to decrease the inflation rate and giving the subsidies to some special sectors who are the major contributor of the inflation. So this is how inflation increased in the Pakistan.
There are many reasons for the inflation in the Pakistan. The most important thing is the rise in prices of oil, gas and excise duties. The multiplier effect of the rise in oil, gas prices are levying of excise duties, sales tax on, on a number of items has greatly contributed to the cost push effect. The increase in the number of sick unit, fall in industrial productions due to strikes, electricity breakdowns cause decrease in production and lead to higher cost, thus pushing up inflationary pressure. The other reason could be the increase in utility tariffs.
The government in budget considerably increased the rates of sales tax, excise duty on a large number of items. A rise in utility tariffs has also kicked a new round of inflation in the country. The rise in support prices of the agriculture crops. The government raised the support prices of cotton, wheat, sugarcane to protect the interests of the farmers. This also has an inflationary impact on the economy. The government also increases in the direct taxes to boost up its revenues. For increasing the revenue the government is heavily relying on the taxes collected by itself on the sale of different commodities.
Pakistan is a developing country. Inflation is one of the major problems of this country. In fact it is the root cause of so many problems in the country.
Following are some of the key causes of Inflation in Pakistan:
- Increase in Supply of money as compared to increase in supply of goods and services.
Possible reasons: - Excess money supply. Corrupt governments print notes when they run out of money, instead of issuing bonds. - Cost-push inflation due to rise in the oil prices (this is an external shock) - Illegal price-setting and collusion among producers of commodities such as wheat, cement and sugar. Many large groups of producers exert monopolistic influence. - Producer expectations about their costs are a self-fulfilling prophecy of increased inflation.
In pakistan the main reason of inflation to increase the prices of regular items,Such as Atta Dal Sugar ,Ghee and other items.The government is totally fail to control the prices of these items. Secondly, the government to increase the oil prices.when oil prices are increase the affect of every items used in daily life.Such as fares of trucks,etc. Third things the mostly industries are closed due to government polices and create unemployment.One Example.The Dewan Mushtaq Group is Mostly Companies are closed.In Dewan Salman Fibre Ltd is a largest polyester staple fibre plant in Asia.There are 5000 Peoples are work in this organisation.Totally Employees are unemployed reason close plant due Government and other problems.
These r the the reasons of inflation in Pakistan 1 illegal trading 2 money laundering 3 politician are not paying taxes 4 corruption in Govt.organizations 5 corruption in customs 6 electricity shortage lead to increase prices. 7 circular debts
Inflation is its peak all over the world and there are different reasons for it. In the case of Asian country, Pakistan Inflation is the result of monetary phenomenon. The reason is that excess money supply growth in Pakistan has basically enhanced inflation in Pakistan. According to monetary policy announced recently in Pakistan, the CPI of Pakistan has dropped to 19.1% in March 2009 as compared to 25% in August 2008. But still inflation is very high as compared to the desirable level. Inflation has also risen because of increasing costs like wages. Moreover, the international increase of commodity prices, external shocks, worsening exchange rate and exhaustion of natural resources have also contributed significantly in enhancing inflation.
Inflation in Pakistan is on the rise persistently, it can only be controlled if the Government takes concrete steps for the relief of a common Pakistani. State Bank of Pakistan may play a key role in this regard. Pakistan must explore and utilize its own natural resources as there are plenty of resources in Pakistan. Relying upon ourselves is the key to success and solution of every financial problem.
When SBP see inflation rate increase in country so security sell in open market and inflation rate decrease so security purchase therefore flow of cash is control in economy system.
