7/27/2019 inflation.rtf

1/3

Inflation means a rise in prices of goods and services in an economy over a

period of time. Inflation is caused by some demand side factors (Increase in

money supply, Increase in income, Black money spending, Expansion of the

Private Sector, Increasing Public Expenditures) and some Supply side factors

(Shortage of factors of production, Industrial Disputes, Increase in exports

(excess exports), Global factors, Neglecting the production of consumergoods).

Inflation effects the different sectors of the economy (Effects on the

distribution of income and wealth, Effects on production, Effects on the

Government, Effects on the Balance of Payment, Effects on Monetary Policy,

Effects on Social Sector, Effects on Political environment) and different

classes of the people (Debtors & Creditors, Salaried Class, Wages earners,

Fixed income group, Investors and shareholders, Businessmen, Agriculturists).

There are many causes for inflation, depending on a number of factors. For

example, inflation can happen when governments print an excess of money

to deal with a crisis. When any extra money is created, it will increase some

societal groups buying power. All sectors in the economy try to buy more

than the economy can produce. Shortages are then created and merchants

lose business. In the end, the price level rises.

Another common reason of inflation is a rise in production costs, which leads

to an increase in the price of the final product. For example, if raw materials

increase in price, this leads to the cost of production increasing, this in turn

leads to the company increasing prices to maintain their profits. Inflation can

also be caused by federal taxes put on consumer products. As the taxes rise,

suppliers often pass on the burden to the consumer.

In Pakistan, the most important thing is the rise in prices of oil, gas, excise

duties and the increase in the utility tariffs. These all has an inflationary

impact on the economy. Pakistan, with a population of about 16 million

people has undergone a remarkable economic growth during last few years,

but the core problems of the economy are still unsolved. Inflation is one of

these core problems.

Government claims that in order to keep the prices of essential commodities

7/27/2019 inflation.rtf

2/3

under control, it has been taking various measures throughout the year. In

order to provide relief to the low and fixed income groups, the government

has been selling wheat flour and sugar through the outlets of the Utility

Stores Corporation (USC) at much lower prices than the market.

The government has also allowed the import of various items through land

routes from neighboring countries. But, all these are secondary measures.

Problems like inflation and poverty cant be resolved by applying the

secondary measures directly, these need strategic planning. Unfortunately, in

Pakistan, these core problems have never undergone such a planning

process.

Government has never invited foreign investment for the production of basic

goods. Agriculture sector, on which the major industries rely for the raw

material has not been given sufficient subsidies. The major rise in the prices

is because of the increasing prices of oil (as increased prices of oil increase

the cost of production), but no such steps have been taken to control the oil

prices.Domestic productions at less cost of production will not only make the

availability of goods much easier but Aggregate Supply will also increase, and

domestic industry will get developed.

Inflation is one of the obstacles on the way of development. In Pakistan, it has

squeezed the major part of the population. It needs to be controlled by

strategic planning. Domestic production should be encouraged instead of

imports; investment should be given preference in consumer goods instead of

luxuries, Agriculture sector should be given subsidies, foreign investment

should be attracted, and developed countries should be requested for

financial and managerial assistance. And lastly a strong monitoring system

should be established on different levels in order to have a sound evaluation

of the process at every stage.

Inflation always hurts ones' standard of living. Rising prices mean people

have to pay more for the same goods and services. If income increases at a

slower rate as inflation, the standard of living declines even if one makes

more. So it is the root cause in making and affecting economy and people of

the country poor. If we want to control inflation we shall have to inflict strict

control over the supply of money and evading any relaxation to the supply of

money. This is the most apt way whereby we can control inflation effectively

7/27/2019 inflation.rtf

3/3

and keep the economy of the country in a strong and stable position.