Inflation (With Outline)

Inflation

Inflation

Outline:-

• Introduction
• Types of inflation in Pakistan
• Causes of inflation
• Impacts of inflation
• How to control inflation

Inflation has been termed as a many sided monster by the economists. The word inflation comes from inflate which means to rise artificially. Different scholars have put forward various definitions of inflation. According to Coulbonis, it is a case of too much money chasing too few things. Edward Shapiro says, “A persistent appreciable rise in the general level of prices in known as inflation. Inflation brings great misery and hardship for the common people and salaried class is especially hard hit. Investment is curtailed and uncertain conditions prevail all over. It has been steadily building up since the world war-II.

                It is now a worldwide phenomenon. It has assured dangerous proportions and is a much discussed subject. According to economic survey 2002-03 the inflation rate in Pakistan was 3.3 percent. This a lower rate of inflation. However, it has been at very high level during 1980s and 1990s. From 1999 to 2004, the average inflation rate in the country has been 3.71 percent.

                There are two types of inflation as:

I)                    Demand pull inflation.

II)                  Cost push inflation.

                When aggregate demand for goods and services exceeds the available supply of output, there is a rise in the general price level which is called “demand pull inflation”. When there is no increase in aggregate demand, prices may still rise. This may happen because of costs, particularly the wage cost go on rising. This is called “cost push inflation”.

                Unfortunately, fluctuation in the price level affects classes of people differently. It affects both the debtors and creditors, the debtors obtain great advantage whereas the creditors on the other hand lose a lot. The business class is greatly benefited. The businessmen try to increase their profits by increasing the gap between their costs and prices. The greater the difference, the greater the profits of the enterprises. Rising prices are greatly welcomed by farmers as they reap greater profits during inflation. During inflation, the wage earners are the most hard hit class. When prices rise, the wages do not increase in the same ration as the prices do. Due to fall in their incomes, they are subject to great economic miseries.

                There are a variety of causes of inflation; first prices rise if the supply becomes less because of workers strike, closure of factories, floods, absence of rainfall, earthquakes etc. When there is a shortage of agricultural products like rice, gram, wheat, vegetables and others, their prices also rise. In our country prices of industrial and agricultural goods have risen partly because of their shortage. With an increase in their income, the people need more clothes, shoes and other things of daily use. They buy more ghee, oil, fruits and other television sets. Generally, the production of goods does not increase very fast. Money used for unproductive purposes, such as for building plazas, cinemas, hotels etc also gives rise to inflation. It is crystal clear that money thus spent wasted as it has no share in the development efforts.

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                Prices of things on world markets also have direct or indirect effects upon things produced in the country. We can see how prices of different things like petrol, machines, tools, iron, chemicals, paper etc have risen on world market. Pakistan imports these so their prices in the country are much higher than before. The prices of other things have also risen.

                Inflation creates not only price hike but it also gives birth to countless gigantic problems. It makes the poor, poorer and the rich, richer. These create feelings of frustration among the workers. Continuous price rising leads to hoarding of goods by the wholesale and retailers in the hope of high profits.

Remedies:-

                It can be controlled by a single measure nevertheless, if monetary and fiscal measures are wisely coordinated, it can greatly help in controlling the continuous precess of rising prices. All the utility stores in the country should be fully stocked with essential consumer’s items to avoid any food shortage. Provincial governments should intensify their vigilance over the hoarders. Profiteers to seek smuggling and hoarding. Domestic production of essentials should be enhanced with fiscal and monetary concessions. Sunday bazaars should be set up under the control of Tehsil, District and Divisional Administration.