All-time high inflation in Pakistan.

One of the most significant developments in the current economic scene in Pakistan has been the sharp increase in the rate of inflation. The annual average rate of increase in the wholesale price index during the last twelve months is more than 30 per cent. The inflation number is debatable and different economists give different numbers. Yet there is a consensus that inflation in Pakistan is all-time high. Such a sharp increase in prices in recent months has not only caused alarm in economic circles but has equally disturbed each and every segment of society.

As inflation rises, every rupee you own buys a smaller percentage of a good or service. Inflation not only affects the purchasing power of the already down people rather minimises the chancing of recovery towards growth. However, there are two theories of inflation namely; cost-push and demand-pull theory. Demand-pull inflation is a result of strong consumer demand. When many individuals are trying to purchase the same good, the price will inevitably increase. When this happens across the entire economy for all goods, it is known as demand-pull inflation. Whereas, cost-push inflation causes a substantial increase in the cost of important goods or services where no suitable alternative is available. Therefore, the more money flowing inside the economy the more will be the inflation. If the interest rates are kept high, the money supply can be controlled and it can help control the inflation. This is why interest rates are being increased in Pakistan to control inflation, so far required results have not been achieved.

Difference of opinion

There has always been a difference of opinion among economists on its contributing factors. Some blame monetary causes and others attribute its occurrence to maladjustments in the economic system. The recent surge of inflation is a matter of serious concern for a variety of reasons; first, the inflation of food, raw materials, manufactures, and fuel and lubricants, grew by an average rate ranging from 25 to 35 per cent p.a. in the last twelve month. The high double-digit inflation has been the result of a number of reasons mainly undocumented economy, high global oil prices, a massive devaluation of PKR, and high interest rates.

Secondly, high and rising inflation has posed a serious threat to savings and growth. A high rate of inflation in Pakistan is actually reducing the real return on financial assets, thereby discouraging savings because of high...