Inflation in Pakistan Revisited

Publication Year : 1996

A notable development in recent years in Pakistan’s economic scene has been the sharp pickup in the rate of inflation. In particular, Pakistan has experienced sustained intlation (changes in the CPI) hovering between 11.0 to 13.0 percent range during the last three years (1993-94 to 1995-96). The persistence of inflation at double-digit rates over the three successive years has attracted considerable attention of academics and policy-makers. Not surprisingly, one of the thorniest issues in Pakistan’s policy arena today is how to put inflation under effective control.Recent studies on inflation in Pakistan I broadly agree on the key factors influencing the rate of inflation, namely, the growth in money supply, the supply side bottlenecks, the adjustment in government-administered prices, the imported inflation (exchange rate adjustment), escalations in indirect taxes, and inflationary expectations. However, these studies do not concur on the relative importance of each of these factors as determinants of inflation. While Nasim (1995) and Hossain (1990) find money supply as the principal factors underlying the rising inflation rate in Pakistan, others suggest that food prices followed by government administered fueVenergy prices and indirect taxation are the primary impetus for the upward inflationary spira1.2 In fact, Naqvi et al. (1994); Hasan et at. (1995) and Bilquees (1988) accord relatively less importance to money supply as a factor influencing the rate of inflation but in no way recommend a relatively easy monetary policy.