Rising inflation rate in Pakistan, Govt must take prompt measures.

Byline: S. Kamal Hayder Kazmi

Studies revealed that high and sustained economic growth with low inflation is the central objective of the macroeconomic policy makers in any economy. The relationship between growth and inflation, however, depends on the state of the economy. The studies furthermore revealed that high growth, without an increase in inflation, is possible if the potential output of the economy is growing enough to keep pace with demand. It is also possible if the actual output is below the potential output and there is sufficient spare capacity available to handle with the demand pressures. The economists on the other hand, revealed that rising inflation can have severe results for the economy.

High inflation is always correlated with increased price variability, which can lead to uncertainty about the future profitability of investment projects. Inflation may also impact an economy's balance of payments by making its exports relatively more costly. Moreover, inflation can interact with the tax system to disturb borrowing and lending decisions. Firms may have to allocate more resources to dealing with the effects of inflation.

In Pakistan, statistics showed that in January Pakistan's Consumer Price Inflation (CPI) was registered at 14.56 percent, which was the highest result it has been in greater than a decade. However, the index started declining from February, when it had eased to 12.4 percent. It additionally declined to 10.24 percent in March, 8.5 percent in April, and then to 8.2 percent in May. The State Bank of Pakistan (SBP) presently revealed that for the year 2020 Pakistan's inflation was not the highest in the world. SBP compares Pakistan's inflation to a few developing and developed countries. In this year the country did have a relatively elevated inflation rate so far. Furthermore, Argentina, Iran, Nigeria and Turkey's inflation has been on higher note. Since January, inflation in the country has declined sharply and much faster than in most other emerging markets.

According to profit's own analysis, there are almost 27 other countries that have a higher inflation rate than Pakistan. Presently, in the world the highest inflation is in Venezuela with 2,431 percent in March 2020. Around the world the average inflation rate is 21.25 percent. However, this statistics includes not only Venezuela's inflation rate, but also Zimbabwe's high inflation rate, at 766 percent in April 2020. If these two outliers are removed...