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Inflation in Pakistan - Inflation in Pakistan Introduction...

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Inflation in Pakistan Introduction Inflation is a main sign of a state and provides important insight into the condition of the economy and the sound macroeconomic policies that administers it. A stable inflation not only gives a developmental environment for economic growth, but also lifts the destitute and fixed income populace who are the most susceptible in society. In the last ten to twelve years, with a few exceptions, inflation around the world had been at a retreat. Though, with floating global growth, as well as with higher population increase, rapid industrialization and urbanization in emerging markets, and strong per capita income increase, inflation has started to penetrate into many parts of the world, including Pakistan. With the rising demand for essential commodities, food inflation has come out to be a main contributor to recent global inflationary pressures. There is a general agreement that the period of economical food is over. Rising food prices over previous year have helped push forward inflation all around the world. The high price of food in the global arena with thoughtless policy responses threatens to push millions into poverty. Soaring food prices have given rise to inflation not only in Pakistan, but also across the region, particularly during 2007 and mid-2008. It is disturbing given that food price inflation is the most recessive of all taxes, affecting the poor and fixed income groups the most. Moreover, this sudden increase in international food prices is a threat to macroeconomic stability through inflation, with rising cost for food subsidies as well as negative impact on the exchange rate for goods and services importing economies. Pakistan being a developed country, the inflation has to be controlled in order to ensure sustainable growth with macroeconomic stability. Together, empirical and theoretical studies reveal that there is a strong link among inflation and unemployment. Both the high level and low-level inflation prove to be detrimental for an economy. Both extremes withhold growth prospects, inflict economic suffering on the population, cause inefficient allocation of resources, create uncertainty throughout the economy and undercut macroeconomic policies.
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High inflation always burdens the poor and fixed income groups more than the rich, as they are not able to guard themselves against inflation, neither are they able to compensate themselves against the risks that inflation brings with it. On the contrary, low-level inflation can also have a harmful impact on growth through a number of different factors. For instance, falling asset prices can limit collateral lending; the negative wealth effect can slow down demand; and borrowers are worse off since the real rates have turned against them.
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