Inflation is a phenomenon where the purchasing power of your currency goes down due to the increase in the supply of new currency.
Why the inflation is being increased day by day in Pakistan ? What are impacts it puts upon most of the citizens in Pakistan?Some steps need to be taken to tackle this problem!
There are some reasons which give air to inflation:
1- National Debt
We all know that high national debt is a very bad thing . Did you know that it can actually drive inflation to higher levels over time?The reason for this is that as a country's debt increases the government has two options the can either raise taxes or print more money to pay off the debt . A raise in taxes will cause businesses to react by raising their prices to offset the increased corporate tax rate. Alternatively , should the government choose the second option printing more money will lead directly to an increase in the money supply.When more money comes out in the public then the value of money decreases then inflation happens. We Pakistani can see this through our current debts ,we have taken very big amount as a debt so that's the inflation rate is going towards sky .The bailout packages are reason today Pakistan faces a very high inflation rate.
2-Demand pull effect
The demand pull effect states that as wages increase within an economic system (often the case in a growing economy with low unemployment) , people will have more money to spend on consumer goods. This increase in liquidity and demand for consumer goods results in an increase in demand for products . As a result of the increased demand , companies will raise prices to the level the consumer will bear in order to balance supply and demand.
3-Cost Push Effect
Another factor is driving up prices of consumer goods and services is explained by an economic theory known as the cost push effect .
Essentially,this theory states that when companies are faced with increased input costs like raw goods and materials or wages they will preserve their profitability by passing this increased cost of production onto the consumer in the form of higher prices .
A simple example would be an increase in milk prices,which would undoubtedly drive up the price of cappuccino .
This is also one of the reasons that, increasing exposure to foreign market places can increase the inflation rate.
The Impacts It Puts On Citizens:
No doubt a small amount of inflation is good for the economy . In fact, deflation ,even a small amount can be devastating since people would postpone purchase of items as long as possible to buy them at a lower price later,and the economy would stall.
But ,a very high inflation has the opposite effect and people by to hoard,since prices are going up. This results in wrong purchase decisions and the economy is affected badly. Interest rates go up and the economy stalls again so a right amount of inflation is targeted by all central banks.
Second and very common impact is that the ordinary or most of the citizens in Pakistan cannot afford to purchase goods because they have no enough money to buy in such high prices.
In conclusion, we can say that the inflation is being increased with the combination of our own mistakes and government's bad policies.
We don't need to blame only the government ,it can't be happened only because of government. We citizens also play our role to increase inflation rate,we should stop buying foreign goods ,our first priority should be our own goods and we should promote our own goods through different ways then the government should play its role ,the government won't give priority to imports rather the government will try to focus on domestic goods likewise export will be increased . Finally the government should stop to take loans from foreign countries or organisations !! If we take these loans then our country can't be able to work according to its own interest or policies.