The 180 million people of Pakistan have had to bear very high rate of inflation in recent years with substantial increases in prices at a time of large-scale unemployment. Undesirable supply factors have also come in effect concurrently to impede economic growth considerably. The situation has become even more terrible with the pile on factors of increase in oil prices after complete elimination of subsidies, a crippling power crisis, fickle exchange rate and political uncertainties created in the wake of a disastrous war on terror and constantly deteriorating law and order situation in the country. The producers have naturally resorted to drastic cut down in production which in turn has lead to decline in aggregate supply even as the aggregate demand is held constant. As a result, the price level rises have been general and pervasive. Inflation in Pakistan is mainly caused by demand side factors which include increase in nominal money supply, increase in disposable incomes, expansion of credit, deficit financing, black money spending, repayment of public debts etc, etc. It is generally agreed all round that high rates of inflation, even bouts of hyperinflation are often caused by an unnecessary growth in the supply of money. Today, most economists espouse low, steady rate of inflation at all times. Low inflation helps reduce the severity of economic slump by enabling the labour market to adjust more quickly in a downturn and trim downs the risk of a liquidity trap hindering the monetary policy's function of stabilizing the economy. The chore of maintaining the rate of inflation is usually given to monetary authorities of the central bank. The State Bank of Pakistan (SBP) is responsible for controlling size of the money supply in country by setting the interest rates, which it does here through open market operations and through setting banking reserve requirements. The most abrupt effect of inflation is decrease in purchasing power of the rupee which is especially hard on retired groups with fixed incomes, as their spending power decreases each month. Those not on fixed incomes are able to survive better because they can increase their earnings. Ultimately, inflation alters the allocation of income. During long inflationary periods, lenders generally hurt more than borrowers which mean that loans made earlier are repaid later in inflated rupees. The progressive loss in the value of money during inflation makes the borrowers less willing to use the money as standard of deffered payments. In Pakistan, inflation is one of the major hurdles in development too. It has mangled a major part of the population and needs to be controlled through strategic planning. The government is required to establish strong monitoring system on different levels with tight monetary and fiscal stance to come to grips with the inflationary pressures that have been causing such a huge decline in the purchasing power and real earnings. -RABIA SHAKIR, Karachi, July 31.