Current Inflation Wave and Its Impact on Common Pakistani
In economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of moneyThe opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose.
Inflation is measured in a variety of ways depending upon the types of goods and services considered and is the opposite of deflation which indicates a general decline occurring in prices for goods and services when the inflation rate falls below 0%. Theoretically, monetarism is a popular theory that explains the relation between inflation and the money supply of an economy. For example, following the Spanish conquest of the Aztec and Inca empires, massive amounts of gold and especially silver flowed into the Spanish and other European economies.2 Since the money supply had rapidly increased, the value of money fell, contributing to rapidly rising prices.
Causes of Inflation
An increase in the supply of money is the root of inflation, though this can play out through different mechanisms in the economy. Money supply can be increased by the monetary authorities either by printing and giving away more money to the individuals, by legally devaluing (reducing the value of) the legal tender currency, more (most commonly) by loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market. In all such cases of money supply increase, the money loses its purchasing power. The mechanisms of how this drives inflation can be classified into three types: demand-pull inflation, cost-push inflation, and built-in inflation.
- Demand-pull inflation. Demand-pull inflation happens when the demand for certain goods and services is greater than the economy’s ability to meet those demands.
- Cost-push inflation.
- Increased money supply.
- Devaluation.
- Rising wages.
- Policies and regulations.
Although Inflation can be caused by multiple factors with demand-pull and cost-push inflation among the most common. However, the causes of inflation in 2022 are a bit more complex and have been caused in part because of the government’s response to the pandemic, in addition to sudden increases in demand as coronavirus lockdown restrictions faded and as labor shortages occurred across the country.
Inflation Impact on Common Pakistani
Inflation is one of the main factors that reduce the value of your money over time. It means that the money you have at the beginning of the year will get you lesser goods and services at the end of the year. As the prices of even basic goods go up over time and during periods of high inflation, even if you carry on with your normal life – eating the same food, travelling to the same places, etc. – either you need to buy smaller quantities, cut down on the total items you purchase or end up spending more. It will, ultimately, leads to lower levels of investment and economic growth. Inflation may also impact an economy’s balance of payments by making its exports relatively more costly. Moreover, inflation can interact with the tax system to disturb borrowing and lending decisions.
Pakistan is going through a phase of unprecedented economic stress. As has been documented by the mainstream media and several social media platforms, people on the street have been experiencing an acute decline in purchasing power, thanks to a massive increase in the cost of basic necessities, a sharp increase in the utility charges and high unemployment level.
There has been a steep rise in the number of suicide attributed to economic distress. Many people have taken their children out the schools and forced them into labour to make both ends meet. In extreme cases, people have started cutting down on their food consumption. The spectre of hunger is looming large.
“Reports of energy companies responsible for supplying electricity and gas continuing to run at a loss, has put the spotlight once again on the issue of a Pakistani government failing to tackle these difficult problems in a meaningful way,” he said.
“I think Islamabad needs to envisage the basics of lending and borrowing here. A borrower with a frail economic outlook can never be in a position to effectively negotiate about the conditions attached with the debt,” Ayesha N. Rao, a professor in the economics department at the National University of Sciences and Technology in Islamabad, told DW. “The IMF is going to put Pakistan under aggressive taxation regimes to enhance Pakistan’s debt repayment capacity,” she added.
A recent PIDE report shows that while the government estimates 6.5 percent unemployment, as many as 24 percent of the educated people (those with a university degree) are unemployed. As many as 40 percent of the educated women are unemployed. This phenomenon is called stagflation; it features both a high level of economic stagnation and inflation. Furthermore, there is no balance between poverty and inflation as both are rising in Pakistan together. These are the result of man-made policies that have a severe impact on lower-middle-class people as the high inflation has created multiple issues for them. Medical care has become unaffordable, due to the high prices of medicines and fees therefore, a common person cannot get proper treatment and spend a healthy life which is necessary for well being.
Education is the basic right of every man. Through education, one can protect his country from any kind of loss but unluckily most of the children are out of schools saying that their parents cannot afford educational expenses. Instead of getting an education, they work to support financially their family. Similarly, proper foods help to maintain a healthy life and save us from many diseases such as heart disease, stroke and diabetes. It may also help to reduce our risk of developing cancers and keep our weight healthy but a common person does not tolerate the expenses of proper food and buy normal food which might affect on their health.
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