LAHORE Pakistan has been gripped with high inflation that is affecting Pakistans economy adversely. According to financial experts, in last four years average yearly inflation stood at 14.6 percent as against an average GDP growth rate of mere 2.9 percent. The overall CPI has risen by 76 percent in last four years thereby eroding the purchasing power of masses as overall economy has not performed in line with mounting prices. Economists said that with inflation forecasted to stay in double digit in FY12, it would be first time in Pakistans history that people will observe consecutive 5 years double digit inflation. The fiscal year 2012 would be another year of double digit inflation on the back of higher commodity prices, particularly international crude oil and food products. These contribute approximately 50 percent to CPI basket and have been the major reasons behind the recent inflationary pressure. Food inflation stood at an average 14.6 percent in last 4-year, while oil related inflation stood at an average 13.7 percent in the same period. The impact of commodity price hike would be further augmented by structural weakness arising from power/ energy shortage and weakness in the supply chain. In addition to commodity price hike, fiscal indiscipline poses another major threat to the inflation number. Escalating fiscal deficit from the envisioned target of 4 percent of GDP (Rs950b) would render into access government borrowing from the banking channels as external inflows have been affected due to uncertain security situation in the country. This, in turn, could render into re-emergence of monetary overhang and thus, fuel inflationary pressure going forward. Structural weakness arising from energy shortage, along with hike in the international commodity prices (particularly oil) stand out as the major reason behind Pakistans high inflationary period. In addition, upward adjustment in the electricity tariffs, rupee devaluation against greenback (average annual 4 year devaluation of 9.3 percent) and access government borrowing from the SBP (which stood at Rs 3 trillion at the end of FY11) also lend their hand in creating inflationary pressures. Farhan Mehmood, a financial expert, expects average FY12 inflation to clock at 12 percent which is also the projection of the government. After Ramadan YoY CPI may touch 11 percent due to high base affect. However with full year inflation likely to remain in double digit once again, Pakistan will see for the fist time fifth consecutive years of double digit inflation. He observed that considering inflation as monetisation phenomena, the central bank opted for a vigilant approach and keeps the policy rate at elevated levels so to rope in the overall aggregate demand. Thus structural weakness has resulted in 4-year GDP growth rate to slow down at a time when South Asian economies are booming. It is to be noted that inflation is one of the key indicators of a country that provides an important insight on the state of the economy and policies that govern it. A stable inflation not only provides impetus for economic growth, but also uplifts vulnerable stratas of the society.