Inflation, the increase in prices or the rise in the cost of living in a country, is currently a concerning issue in Pakistan. Headline inflation, based on the consumer price index (CPI), increased to 29.4% year-on-year in June 2023, compared to 21.3% in June 2022. Several key factors historically contribute to inflation in Pakistan:
Demand-Pull Inflation: Excessive demand for goods and services compared to their supply is one of the primary drivers of inflation in Pakistan. This can result from factors such as increased government spending, rising consumer demand, or expansionary monetary policies that increase the money in circulation.
Cost-Push Inflation: This type of inflation occurs when the costs of production for businesses increase, and these higher costs are passed on to consumers in the form of higher prices. Factors contributing to cost-push inflation in Pakistan include rising energy prices, higher import costs, and wage pressures.
Exchange Rate Fluctuations: Fluctuations in the exchange rate, which Pakistan often faces, can make imports more expensive, leading to higher prices for imported goods and services and contributing to inflation.
Global Commodity Prices: Pakistan relies on imports for essential commodities, including oil and food. Changes in global commodity prices, especially increases, can lead to higher inflation in Pakistan as the cost of these imports rises.
Monetary Policy: The actions of the State Bank of Pakistan, the country’s central bank, play a crucial role in controlling inflation. Expansionary monetary policies, such as lowering interest rates or increasing the money supply, can stimulate demand but may also contribute to inflationary pressures.
Fiscal Policy: Government spending and taxation policies can impact inflation. If the government increases spending without a corresponding increase in revenue, it can lead to inflationary pressures as more money enters the economy.
High inflation rates not only reduce GDP growth rates but also affect the productive capacity of the economy and employability in the private sector, contributing to the deterioration of the purchasing power of the poor and lower-income segments of Pakistan. Poverty and inflation have exacerbated street crimes in Pakistan, as evidenced by the UNODC report on the impact of economic crises on crime, which states that during economic stress periods, the incidence of robbery may double, and homicide and motor vehicle theft may also increase.
NAFEESA,
Karachi.