Inflation, the increase in pric­es or the rise in the cost of liv­ing in a country, is currently a concerning issue in Pakistan. Headline inflation, based on the consumer price index (CPI), in­creased to 29.4% year-on-year in June 2023, compared to 21.3% in June 2022. Several key factors historically contribute to infla­tion in Pakistan:

Demand-Pull Inflation: Exces­sive demand for goods and ser­vices compared to their supply is one of the primary drivers of in­flation in Pakistan. This can result from factors such as increased government spending, rising con­sumer demand, or expansionary monetary policies that increase the money in circulation.

Cost-Push Inflation: This type of inflation occurs when the costs of production for businesses in­crease, and these higher costs are passed on to consumers in the form of higher prices. Factors contributing to cost-push infla­tion in Pakistan include rising en­ergy prices, higher import costs, and wage pressures.

Exchange Rate Fluctuations: Fluctuations in the exchange rate, which Pakistan often faces, can make imports more expensive, leading to higher prices for im­ported goods and services and contributing to inflation.

Global Commodity Prices: Pak­istan relies on imports for es­sential commodities, including oil and food. Changes in glob­al commodity prices, especially increases, can lead to higher in­flation in Pakistan as the cost of these imports rises.

Monetary Policy: The actions of the State Bank of Pakistan, the country’s central bank, play a crucial role in controlling in­flation. Expansionary monetary policies, such as lowering inter­est rates or increasing the mon­ey supply, can stimulate demand but may also contribute to infla­tionary pressures.

Fiscal Policy: Government spending and taxation policies can impact inflation. If the gov­ernment increases spending without a corresponding increase in revenue, it can lead to infla­tionary pressures as more money enters the economy.

High inflation rates not only re­duce GDP growth rates but also affect the productive capacity of the economy and employability in the private sector, contributing to the deterioration of the pur­chasing power of the poor and lower-income segments of Paki­stan. Poverty and inflation have exacerbated street crimes in Pak­istan, as evidenced by the UNODC report on the impact of econom­ic crises on crime, which states that during economic stress peri­ods, the incidence of robbery may double, and homicide and motor vehicle theft may also increase.

NAFEESA, 

Karachi.