In ordinary terms inflation would mean a process of rise in the general price level. Technically speaking "Inflation means a persistent rise in the general price level in a country over a number of years". Thus different types of inflation exist at different places, depending upon the reason, which generates it. In Pakistan, general price level is persistently rising since partition of the Subcontinent. Dearness is due to declining economic growth, expansionary policies, output setbacks, higher taxes and a depreciation of Pak rupee. Generally the whole world is facing the problem of prices alike, but in Pakistan it has become a severe problem with more than 11% inflation rate per annum, which is the highest in the world. It is considered that inflation rate from 2 to 3% is necessary for the proper growth of economy but if it exceeds from this limit, then it becomes a menace The major cause of increase in the price level is an increase in currency or credit money. Increase in stock of money induces people to demand more goods and services. The policy of deficit financing has led to increase the quantity of money in the country particularly after 1972. In January 1993 currency in circulation was Rs. 166 billion, which has gone up to Rs. 834 billion in June 2007. At the end of the fiscal year 2007-08 it is more than 1050 billion. To control this reason of price like, government must follow stringent monetary and fiscal policies, as a preliminary step, central bank should adopt tight monetary policy to reduce currency expansion. Through, tight fiscal policy, taxes should be increased and Government expenditures should be reduced. Population of Pakistan is increasing at the rate of 1.8% per annum. At this time population of country is 162 million, while it was 325 crore in 1947. The pressure of population has increased the aggregate demand for commodities, thus pulling up the general level of prices in the country. Pakistan is the 6th most populous country in the world. Population should be controlled through artificial measures, population-planning programs and indirectly through education. Policies of devaluation and deprecation play a pivotal role in ups and downs of the economy. After partition one US Dollar was equal to 4.50 rupee of Pakistan. Government of Pakistan devalued its currency in 1852, 1972, 1982, 1996 and 1997 prominently. In 1972 it was devalued by 131% to increase exports. Now at the end of fiscal year 2007-2008 rupee has lost its value by 10%. It is right that devaluation increases exports but on the other hand increases the prices of imports. That's why country is facing the inflation. To solve this problem Govt. should adopt devaluation policy carefully and through proper planning. Non development expenditures like on defense, police, community affairs, civil administration, repayment of loans with interest etc have increase manifold. These were Rs. 529 billion in 1997-98, which rose to Rs. 1056 billion in 2007-08. This has created additional demand for goods and services, due to which prices are rising Government. should cut down such non-developmental expenditures to reduce demand pressure. While the oil prices go up in international market oil importing countries like Pakistan are forced to increase the domestic price of oil. In 1973 oil prices rose up from 2 Dollar per barrel to 10 Dollar per barrel. Currently it has reached to the record level of 140 Dollar per barrel. To check inflation from this side Govt. should provide subsidy on imported oil and plan to explore oil and other natural resources like natural gas, coal etc. Unfortunately, there has always been political instability in Pakistan, due to which investment in long-term industrial ventures in private sector could not take place that's why there is shortage of every kind of items and there is inflation. Long term investment and consistent policies require stable political Government and democracy require a sound judicial system. So activation and prevalence of Judicial system is necessary to control prices directly or indirectly. Agriculture sector contributes 20.9% to GDP of Pakistan and industrial sector more than 15%. Both the sectors are facing serious problems and their growth is very slow. Due to shortage of food items and industrial goods, there is inflation. Govt. should pay attention to the agricultural sector by providing subsidy loans, fertilizers, seeds, pesticides and consultancy services to farmers. There should be investment friendly policies like tax holidays, cheap energy, raw material, etc to industrial sector IMF and World Bank play a significant role in determining the economic policies of a country. So they often exert pressure to reduce subsides on oil, gas and fertilizers etc. the government. should adopt the policy of self reliance and taking its own decisions. Indirect taxes play a prominent role in boosting prices. Direct taxes contribute only 34% while indirect taxes 66%, which is too much. Producer shifts the burden of indirect taxes on consumers by increasing the price of taxed items. We are facing energy and water crisis as the Kalabagh Dam Project has been abolished. Due to shortage and high prices of electricity, the cost of production is high; as a result food and non-food items are expensive. Dams should be constructed and Govt. should adopt cheapest sources of energy. Provision of adequate water to agriculture sector would definitely bring the prices down. DDD's (Three Dees) means fiscal deficit, trade deficit current account deficit are responsible to create inflation. Government should also take action to remove these deficits. Pakistan has been receiving foreign aid since early 1950's. Currently the foreign debt outstanding is 43 billion dollar. Foreign loans could not spend honestly and properly. That's why we have to repay a large amount with interest in every annual budget. Due to the less availability of developmental funds in the budget, there is shortage of goods and inflation is prevailing. Non-economic ills e.g. smuggling, black marketing, hoarding and profiteering have also been a source of an increase in general prices. It is estimated that annual generation of black money is about 25% of GNP of the country. In country there is no magistracy system, which was present since before 2000. There is no proper economic and non-economic planning from the Govt. side. There are speculators and corrupt people who are responsible for inflation. To conclude, I would like to suggest that inflation can be controlled though proper planning, by adopting the Islamic economic system, by establishing price control structure at different levels in the country and thorough adopting the principle of simple living as our last prophet Muhammad (PBUH) has directed.