Inflation refers to rising prices of essentials such as wheat, milk, meat, clothing, medical services, coffee, electricity, etc or, alternatively, the decline in the value of money so that it takes more money to buy the same goods and services. Inflation affects different sectors of economy, sharing of income and wealth, production, government, the balance of payments, economic policy, social sector, political environment and different classes of the people.
Inflation is an old problem. There is a widespread recognition that inflation results in inefficient resource part and hence reduces potential economic growth. Inflation imposes high cost on economies and societies, excessively hurts the poor and fixed income groups and creates uncertainty throughout the economy and undermines macroeconomic stability. High inflation has always affected the poor more than the rich because the poor are less able to protect themselves against fluctuating costs and less able to face against the risks that high inflation poses. Lowering inflation, therefore, directly benefits the low and fixed income groups.
High inflation rates are regarded as harmful to economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a pull on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving.
Inflation can also impose hidden tax increases. For example, inflated earnings push taxpayers into higher income tax rates unless the tax brackets are indexed to inflation. With high inflation, purchasing power is redistributed from those on fixed nominal incomes.
The government has to do its best to bring down inflation to a low level which the State Bank of Pakistan has indicated in its statement on financial policy. The causes of the consumer price inflation are too many, beginning with the basic and other food items like mutton, beef, chicken, eggs and milk. They include the house rent which has a large share in the consumer price index and rising transport costs.
The State Bank has been very keen in listing almost all the factors which increases the inflation. The Bank has been more honest than before and its statement shows that while many sectors show the rising trends in inflation, real relief is coming forth from almost no sector. And that leaves the people with no choice. It is a kind of complete inflation.
High inflation in Pakistan then is the product of a multi-dimensional process. It is the outcome of two economies, open and underground, working together with corruption and crime, which makes it difficult for the government or society to check. Above all, we live in a profit-oriented society where the consumer can never overcome over the capitalist or the market.
Inflation can be controlled by financial measures credit control, demonetisation of the currency, issuing new currency, economic measures limitation in unnecessary expenditures, increase in rate of taxes, increase in volume of savings, anti-inflationary budgetary policy and increasing public debt policy non economic measures among themselves.