What is the main reason of inflation in Pakistan?

 Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It is measured by the Consumer Price Index (CPI) which is the weighted average of prices of a basket of goods and services consumed by households. In Pakistan, inflation has been a persistent problem for several decades, affecting the standard of living of its citizens. There are several reasons why inflation has been high in Pakistan, and in this blog post, we will discuss some of the main causes.

  1. Increase in Money Supply: One of the main reasons for inflation in Pakistan is the increase in the money supply. When the central bank of a country prints more money, it increases the amount of money in circulation, which leads to a rise in prices. The State Bank of Pakistan (SBP) has been printing more money to finance the government's budget deficit, which has contributed to the rise in inflation.

  2. Fiscal Deficit: Pakistan has been running a fiscal deficit for several years, which means that the government is spending more than it is collecting in revenues. To finance the deficit, the government has to borrow from the SBP, which leads to an increase in the money supply and inflation.

  3. Energy Prices: Pakistan relies heavily on imported oil and gas to meet its energy needs. The increase in global oil prices has led to an increase in energy prices in Pakistan, which has in turn led to an increase in the cost of production of goods and services. This has contributed to the rise in inflation.

  4. Depreciation of Currency: The depreciation of the Pakistani rupee against major currencies has also contributed to inflation. When the value of the currency falls, it makes imports more expensive, which leads to an increase in the cost of production and ultimately, higher prices.

  5. Supply Chain Disruptions: Covid-19 pandemic has disrupted the global supply chains, and Pakistan is not immune to it. The disruption of the supply chains has led to shortages of some goods and services, which has led to an increase in their prices.

  6. Structural Issues: Pakistan's economy has some structural issues that have contributed to inflation. These issues include poor infrastructure, low productivity, and a weak tax system. These issues have led to a low supply of goods and services, which has led to an increase in their prices.

In conclusion, inflation is a complex phenomenon that has several underlying causes. In Pakistan, the increase in money supply, fiscal deficit, energy prices, depreciation of currency, supply chain disruptions, and structural issues have all contributed to the rise in inflation. To address inflation, the government needs to implement policies that address these underlying causes, including fiscal discipline, infrastructure development, productivity improvement, and a stronger tax system.

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