How Inflation Affects Pakistan’s Economy?

News Desk1 month ago

Another term for a general increase in prices in an economy is inflation. Request Pull inflation occurs when consumers try to purchase too few things on the market with too much money. This phenomenon, often referred to as money inflation, mostly affects fixed-income groups, seniors, and the poorer segments of the consumer base (buyers), with little effect on the wealthier segments of the demand side (consumers). Demand-pull inflation, on the other hand, encourages the supply side to raise prices and output.

Cost-push inflation is the process by which rising production input costs drive up final product and service prices. Cost-push inflation works against producers (suppliers) as well as consumers by decreasing their purchasing power and profit margins, which in turn lowers their motivation to produce. Another name for it is core inflation. The change in prices for goods and services, excluding those from the food and energy sectors, is known as core inflation. These goods are not included in this measure of inflation because of their significantly more variable pricing.

The State Bank of Pakistan Report states that during the fiscal year 2021–2022, the nation’s GDP grew by 6%. Pakistan’s GDP Growth Rate was 2% in January 2023 and is expected to go below that percentage by the conclusion of the 2022–2023 fiscal year.

Pakistan’s unemployment rate was less than 4.5% in 2020, 4.35 percent in 2021, and 6.2% at the end of 2022. The country’s jobless rate is expected to be between 10 and 12 million.

In 2021 Pakistan’s inflation rate was 9.5%. In 2022 inflation rate of the country 2022 stood at 13.4% and according to the State Bank report, in March 2023 the inflation of Pakistan was 31.5%, with core inflation at 17.1% in urban areas and 21.5% in rural areas

Read more: India Economy Surges to Six-Quarter High

The Pakistan Bureau of Statistics in its report of January 2023 states that with base year 2015-2016, the average inflation rate in January 2023 was 27.55%.  The inflation rate for food and beverages was 34.58%; of non-perishable food items was almost 30%; for perishable food items was 5%; of clothes and footwear was 8.6%; of Housing, water, electricity, gas, and other fuels was 23.6%; of health was 2.8%; of transport was 6%; education was 3.8%; of restaurants and hotels was 7%.

The urban food inflation increase as “Increased: Onions (468.54%), Chicken (83.27%), Wheat (78.39%), Rice (65.24%), Wheat Flour (61.25%), Gram Whole (50.47%), Pulse Moong (46%), Pulse Gram (44.53%), Besan (43.25%), Mustard Oil (42.28%), Pulse Mash (37.1%), Fresh Fruits (35.33%), Cooking Oil (31.46%), Milk Fresh (29.27%), Vegetable Ghee (28.49%), Tomatoes (22.44%), Fish (22.28%), Pulse Masoor (22.07%), Meat (20.01%), Fresh Vegetables (8.43%), Potatoes (6.18%) and Sugar (0.83%). The non-food inflation increase as NON-FOOD Increased: Stationery (47.37%), Transport Services (29.97%), Motor Vehicle Accessories (29.26%), Motor Vehicles (28.04%), Marriage Hall Charges (19.93%), Household Textiles (14.55%), Construction Wage Rates (14.24%), Education (10.4%), House Rent (5.43%), Water Supply (4.92%), Newspapers (4.21%), Electricity Charges (0.69%) and Communication Services (0.52%).”

As the Holy Month of Ramadan began at the end of March 2023, prices throughout the nation surged. It’s important to observe that, in market economies, the cost of items decreases seasonally, with sales peaking around Christmas. In the Gulf’s Christian and Muslim nations, Ramadan sales are taking place this year; however, in Pakistan, hoarders and market participants have significantly raised the cost of food and fruit. To raise an additional Rs. 70 billion in revenue, the Pakistani government has also raised the sales tax on some goods to 25%. However, this rise is costing the typical consumer Rs. 120 billion due to inefficiencies at several market tiers.

In addition to negatively affecting GDP growth and the employability of the private sector as well as the economy’s productive potential, high inflation rates also worsen the purchasing power of Pakistan’s lower classes and impoverished individuals. There is a problem affecting the middle class, the impoverished, producers, and investors. In these days of political turmoil, there is no significant long-term economic policy that can provide investors and consumers with a sense of relief. If GDP growth rates continue to decline, an economic slump may develop that is difficult to manage even with shock policies.

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