Daily Times

Pakistan is going through many problems but the most significant problem of all is inflation, which is still unsolved. Inflation is common in every country but if it exceeds the normal level, it is considered as high inflation. Middle and lower-class people of different countries with high inflation suffered more than elite class people because they cannot cope up with the high prices of basic everyday goods due to small amount of income. Therefore, it is necessary for the government of these countries to control the inflation that ultimately benefited the fixed income group.

According to official news, Pakistani’s has an estimated 2% growth rate which for a country of official population of 160 Million turns out to be approximately around 3.2 Million every year. This rapid growth rate is causing huge pressure on the bread winners who are supporting their families.

Different sectors of economy are affecting by inflation like industries, social sector, government and different classes of people (businessperson, debtors, creditors, salaried class, fixed income groups). Inflation can be control by different strategies like demonetization of the currency, issuing new currency, increase in rate of taxes, increase in volume of savings etc.

When economy grows because of increased spending, inflation occurs. When this happens, prices rise and the currency within the economy is worth less than it was before. When a currency is worth less, its exchange rate weakens when compared to other currencies. According to Trading Economics, inflation rate in Pakistan is 5.12% in October 2018 reaching an all-time high of 37.81 percent in December of 1973 and a record low of -10.32 percent in February of 1959.

When inflation increases, the prices of important essentials also increase. Pakistan faces high inflation in 2018, which raise the prices of basic goods. Recently, food items saw the highest increase in prices of fresh vegetables 15.3 percent, tomatoes 8.47 percent, fresh fruits 5.76 percent, chicken 4.34 percent, sugar 3.3 percent, meat 1.78 percent, spices 1.68 percent, condiments 1.66 percent, dry fruits 1.54 percent, fish 1.46 percent, beverages 1.42 percent, tea 1.36 percent, and milk products 1.2 percent. In addition, the global crude oil prices increase all over the world, which influenced the consumers of Pakistan. The slight increase in the inflation is mainly due to increase in oil prices in the past few months.

Education and health indices rose by 12.99 percent and 5.01 percent respectively on a year-over-year basis while a decline of 17 percent was witness in the index of alcoholic beverages and tobacco. Clothing and footwear prices rose by 6.98 percent while that of water, electricity, gas and other fuels by 5.46 percent. The rupee is depreciating, which will also reflect in the prices of imported goods in the next couple of months.

According to a recent World Bank report, 80% Pakistanis are affecting due to the food inflation because the daily income of more than 80 per cent of the population is less than 2 dollars. According to this, it is impossible for common people to afford basic necessities like food because of inflation. It is also heartfelt to know that rich people spend 10 to 15 percent of their income on food, middle class people spend 30 to 40 percent and poor people spend almost 70 to 80 percent of their income on food.

It would be a challenge for the government to restrict the inflation. The State Bank of Pakistan’s projection showed that average headline inflation for FY19 is expected to cross the 6.0 percent annual target. The government has set inflation target at 6 percent for the ongoing fiscal year 2018-19.

There are different techniques that the government should use to control inflation; every method has different effects, some work well some didn’t. For example, controlling inflation through wage and price controls can cause a recession and cause job losses.

The most used technique of controlling inflation is through a contractionary monetary policy. The purpose of a contractionary policy is to reduce the money supply within an economy by declining bond prices and increasing interest rates. This helps reduce spending because when there is a limited amount of money to go around, those who have money want to keep it and save it, instead of spending it.

The second method is to increase reserve requirements on the amount of money banks are legally required to keep on hand for covering withdrawals. The more money banks are required to hold back, the less they have to lend to consumers. If they have less to lend, consumers will borrow less, which will decrease spending.

The third tool is also directly or indirectly reduced the money supply by performing policies that encourage reduction of the money supply. Calling in debts that are owed to the government and increasing the interest paid on bonds so that more investors will buy them.

New PTI government should also take initiative to reduce inflation in Pakistan because majority of people are middle or lower-class people and for them inflation is a big crisis. It also effects other sectors which are suffering from high inflation.