INFLATION ESSAY

INFLATION ESSAY

Outline: 

1. Introduction

2. Types of inflation in Pakistan

3. Causes of inflation in Pakistan

4. Impacts of inflation

5. How to control inflation

Inflation has been termed as a many sided monster by the economists. The word inflation comes from inflate which.means to rise artificially. Different scholars have put forward various definitions of inflation. According to Coulborns it is a case of too much money chasing too few things.

Edward Shapiro says. A persistent and appreciable rise in the general level of prices is known as inflation. Inflation brings great misery and hardship for common people and salaried class is especially hard hit. Investment is curtailed and uncertain conditions prevail all over; It has been steadily building up since the world war-II.

It is now a world wide phenomenon. It has assumed dangerous proportions and is a much discussed subject. According to economic survey 2002-03 the inflation rate in Pakistan was 3.3 percent. This is a lower rate of inflation. However, it has been at very high level during 1980s and 1999s. From 1999 to 2004, the average inflation rate in the country has been 3.71 percent. 

There are two types of inflation, as: 

(i) Demand pull inflation

(ii) Cost push inflation. 

When aggregate demand for goods and services exceeds the available supply of output, there is a rise in the general price level which is called "demand pull inflation". When there is no increase in aggregate demand, prices may still rise. This may happen because of costs, particularly the wage cost go on rising. This is called "cost push inflation". 

Unfortunately, fluctuation in the price level affects different classes of people differently. It affects both the debtors and creditors, the debtors obtain great advantage whereas the creditors on the other hand lose a lot. The business class is greatly benefited. The businessmen try to increase their profits by increasing the gap between the costs and prices. The greater the difference, the greater the profits of the entrepreneurs. Rising prices are greatly welcomed by farmers as they reap greater profit during inflation. During the inflation the wage earners are the most hard hit class. When prices raise the wages do no increase in the same ratio as the prices do. Due to fall in their incomes, they are subject to great economic miseries. 

There are a variety of causes of inflation; first prices rise if the supply becomes less because of workers strike, closure of factories, floods, absence of rainfall etc. When there is a shortage of agricultural products like rice, gram, wheat vegetables, and their prices also rise. In our country prices of industrial and agricultural goods have risen partly because of their shortage. Another cause of inflation is the general rise in the living standard of the people. With an increase in their income, the people need more clothes, shoes, and other things of daily use.

They buy more ghee, oil, fruits and other eatables. They buy more luxury goods like electric fan, refrigerators, heater, radio and television sets. Generally, the production of goods does not increase very fast. Money used ,for unproductive purposes, such as for building plazas, cinemas, hotels etc. also gives rise to inflation. It is clear that money thus spent is wasted, as it has no share in the development efforts. 

Prices of things on world markets' also have direct or indirect effects upon things produced in the country. We can see how prices of different things like petrol, machines, tools, iron, chemicals, paper etc have risen on world market. Pakistan imports these, so their prices in the country are much higher than before. The prices of other things have also risen. 

Inflation creates not only price hike, but it also gives birth to countless gigantic problems. It makes the poor, poorer and the rich, richer. These create feelings of frustration among the workers. Continuous price rising leads to hoarding of goods by the wholesalers and retailers in the hopes of higher profits. 

Remedies: 

It can be controlled by a single measure; nevertheless, if monetary and fiscal measures are wisely coordinated, it can greatly help in controlling the continuous process of rising prices. All the utility stores in the country should be fully stocked with essential consumers' items to avoid any food shortage.

Provincial governments should intensify their vigilance over the hoarders, Profiteers to seek smuggling and hoarding. Domestic production of essentials should be enhanced • with fiscal and monetary concessions Sunday bazaars should be set up under the control of Tehsil, District and Divisional Administration.