Shahud

Money, Banking and Finance Division

Pakistan Institute of Development Economics
1

• Pakistan is facing unprecedented high Inflation. • High inflation is contributing to
– Increasing vulnerability and fall in real income of lower, middle and fixed income segments of the society. – uncertainty about future scenario of the business environment and instability of the financial system – Erosion of business and investors’ confidence – Slowing down of real economic activities
• Investment • Economic growth • Employment

2

Trends in Overall CPI Inflation, Food, and Non-Food Inflation (YoY Basis) General Food Non-Food

35 30 Percen t C h an g e 25 20 15 10 5 0

Month

3

Trends in CPI Inflation, Food and Non-Food Inflation (Period Averages)
General Food Non-Food

35 P e rc e n t a g e C h a n g e 30 25 20 15 10 5 0

Period Average

4

Trends in Overall CPI, Food, Non-Food & Core Inflation
32 28 P ercent C hange 24 20 16 12 8 4 0 2001 2002 2003 2004 2005 2006 2007 2008 Jul-A pril. 2008 Jul-A pril. 2009
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Overall CPI Non-Food

Food Core

Year

Inflation Trend in Asia
25 20 Bangladesh 15 e rc e n ta g e 10 5 0 2005 -5
6

China

India

Pakistan

2006

2007

2008

2009

Trend in Inflation
20 18 16 14 P e r c e n ta g e 12 10 8 6 4 2 0 FY00 FY01 FY02 FY03 FY04 Years FY05 FY06 FY07 FY08

General

Food

Non Food

7

• Demand Pull:
– Monetarists: Money supply which is influenced inter alia by Budget Deficit – Non Monetarists: Increase in spending in excess of full employment level

• Cost Push: Increase in cost of factors of production
– – – – – – Factor prices – oil prices Wage increase Depreciation of currency Interest rate Indirect Taxes increase Subsidies increase
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• Structural: Food shortage

ADMINISTRATIVE PRICE CHANGES
• POL Price Changes (%)
• • Feb, 07 – Nov, 08 • August – Dec, 08 International 95.03 -102.49 Domestic 51.91 -37.64

• WHEAT Price Changes (%)
• • 2007-08 • 2008-09...