Inflation in Third World Countries
Chapter 08
INFLATION
8.1 Introduction Stable inflation is recognized as an integral component of sound macroeconomic policies. Over the last decade, with a few exceptions inflation around the world has been at a retreat. More recently, with a pick-up in growth, inflation has started to rise again. Pakistan’s economy exhibited a similar trend with a low inflation environment for last several years with a sharp pick up over the last three years. There are several internal and external factors which have contributed to the recent pick up in inflation in Pakistan. These factors include: a sharp economic recovery resulting in a rise in the levels of income with the consequential surge in domestic demand; the continued pass through effect of the pervious rise in international oil prices; and a sharp pick up in the international prices of essential commodities. Continuously upward adjustments in the administered prices, such as the support prices of wheat, as well as lower than expected production of essential perishable (vegetable and fruits) and non-perishable (pulses, sugar, chilies etc) commodities also contributed to inflation. The government has been vigilant about inflation and has taken various steps to release demand pressures on the one hand and augment supplies of essential commodities on the other. To ease demand pressure the State Bank of Pakistan (SBP) has tightened monitory policy over the last two years and to augment supplies the government has liberalized import regime and allowed imports of several essential items with a view to increasing the supply of those items. In addition, the government increased its imports of item like wheat, pulses and sugar to complement the efforts of the private sector. To provide relief to the common man, the government also increased the scale of operation of the Utility Stores Corporation (USC) which supplies essential commodities such as wheat flour, sugar, pulses and cooking oil/ ghee at less than the market
INFLATION
8.1 Introduction Stable inflation is recognized as an integral component of sound macroeconomic policies. Over the last decade, with a few exceptions inflation around the world has been at a retreat. More recently, with a pick-up in growth, inflation has started to rise again. Pakistan’s economy exhibited a similar trend with a low inflation environment for last several years with a sharp pick up over the last three years. There are several internal and external factors which have contributed to the recent pick up in inflation in Pakistan. These factors include: a sharp economic recovery resulting in a rise in the levels of income with the consequential surge in domestic demand; the continued pass through effect of the pervious rise in international oil prices; and a sharp pick up in the international prices of essential commodities. Continuously upward adjustments in the administered prices, such as the support prices of wheat, as well as lower than expected production of essential perishable (vegetable and fruits) and non-perishable (pulses, sugar, chilies etc) commodities also contributed to inflation. The government has been vigilant about inflation and has taken various steps to release demand pressures on the one hand and augment supplies of essential commodities on the other. To ease demand pressure the State Bank of Pakistan (SBP) has tightened monitory policy over the last two years and to augment supplies the government has liberalized import regime and allowed imports of several essential items with a view to increasing the supply of those items. In addition, the government increased its imports of item like wheat, pulses and sugar to complement the efforts of the private sector. To provide relief to the common man, the government also increased the scale of operation of the Utility Stores Corporation (USC) which supplies essential commodities such as wheat flour, sugar, pulses and cooking oil/ ghee at less than the market