FINAL PROJECT:

TOPIC: IMPACT OF INFLATION ON EMPLOYMENT

SUBJECT: MACROECONOMICS

SECTION: 2-A

GROUP MEMBERS: SHAMSA KHALID

JAVERIA AFTAB

BAKHTAWAR REHMAN

DANIYAL AHMED

ENROLLMENT NO.: 01-111152-156

01-111152-066

01-111152-036

01-111151-027

TEACHER: SIR ABDUL QAZI SUBHAN

DEPARTMENT: MANAGEMENT SCIENCES

BAHRIA UNIVERSITY ISLAMABAD CAMPUS

1
 IMPACT OF INFLATION ON EMPLOYMENT

SECTION1: INTRODUCTION

1.1 MAIN ISSUE/OBJECTIVE OF STUDY:-

INFLATION:-
Definition: “In economics, inflation is a sustained increase in the general price level of
goods and services in an economy over a period of time.”

When the price level rises, each unit of currency buys fewer goods and services. Consequently
inflation reflects reduction in the purchasing power per unit of money- a loss of real value in the
medium of exchange and unit of account within the economy.
TYPES OF INFLATION:
There are three major types of inflation which are as follows:
1. Demand Pull Inflation: is caused by increases in aggregate demand due to increased
private and government spending etc. Demand inflation encourages economic growth since the
excess demand and favorable market conditions will stimulate investment and expansion.

2. Cost Push Inflation: This occurs when there is an increase in the cost of production for
firms causing aggregate supply to shift to the left. Cost push inflation could be caused by rising
energy and commodity prices.

3 .Built-in Inflation: This is induced by adaptive expectations, and is often linked to the
“Price/Wage spiral”. It involves workers trying to keep their wages up with prices, and firms
passing these higher labor cost on to their customers as higher prices, leading to a “viscous
circle”.

METHODS:

To control inflation, policymakers employ three methods which are as follows:

1. Monetary Measures

2
 2. Fiscal Measures

3. Non-monetary Measures

Monetary Measures: Monetary policy is the policy employed by the central bank to alter
the cost of credit, demand for credit and the availability of credit. A higher interest rate should
also lead to higher exchange rate, which helps to reduce inflationary pressure by:

 Making imports cheaper.

 Reducing demand for exports.
 Increasing incentive for exporters to cut costs.

Fiscal Measures: Fiscal policy measures comprise the policy of the government relating to
taxation, expenditure and borrowing. The government can increase taxes (such as income tax
and VAT) and cut spending. This improves the budget situation and helps to reduce demand in
the economy.

Both these policies reduce inflation by reducing growth of Aggregate Demand.

Non-Monetary Measures: The permanent solution towards inflation should be an increase in

output since inflation is caused by the excess aggregate demand over available output. By
shifting resources of the country from the unproductive to the productive sectors output can be
increased.

EMPLOYMENT:

Definition: “Employment is a term which means hiring of workers for a particular job in
return for wages or salaries.”

TYPES OF EMPLOYMENT:

•Permanent (full time or part time)

•Contract (full time or part time)

3
•Freelance

•Self-employed

•Casual labor

•Temporary employment (seasonal or interim)

 Seasonal employment
 Interim employment

•Piece work

•Independent contractor

•Commission

Permanent employment: Recruitment of an employee on permanent basis within any

particular department until you are fired or dismissed due to unsatisfactory behavior or work.

Contract: The main difference between contract and permanent employment is the length of
time frame for which you have been recruited. This length of contract can vary from a month to
six months, or a year.

Freelance: This type of employment allows workers to only work on a contract based on
projects. Tax is applied on the employee's wage or salary.

Self employed: This concept deals with having ownership of a self business. It is often found
in businesses like sole trader.

Casual Labor: Casual labor employment is a job you do on an irregular basis, as needed.
Workers are paid only for the work produced, with no benefits or paid vacation time.

Temporary employment: A type of employment where the worker is hired for a temporary
time period and is expected to leave as soon as the job is completed.

4
Seasonal employment: Employees recruited on seasonal terms and conditions. The best
example could be workers hired in summers for agricultural jobs.

Interim employment: Interim employments are positions that are available during a specific
period of time to cover for the position of the permanent employee. The most common type of
interim employment is when an employee takes leave and the organization needs someone to fill
in this position while the staff member is away.

Piece work: This type of employment deals with producing piece by piece and also earning
piece by piece. Another name for this type of employment is home workers.

Commission: This refers to jobs in which you get paid on commission, generally on top of a
base salary or hourly wage.

1.2 SIGNIFICANCE OF THE STUDY:-

10 YEARS INFLATION IMPACT ON PAKISTAN

Continuous efforts of the government along with the proactive policy measures with favorable
trend in global commodity prices, the inflation is on downward trajectory since the start of the
FY 2014-15.At April 2015, it has reached at a level of 2.1 percent the lowest since September
2003 on year on year basis. Achievement of lowest inflation rate is contributed by stability in
exchange rate, better production of minor crops as compared to last year and vigilant monitoring
of prices both at federal and provincial level as well better supply of commodities. Provincial
governments also kept a constant watch on prices and supply of essential items and took various
proactive measures.

Its impact has become visible in domestic market prices where prices of essential consumer
items declined substantially and common man got significant relief in their cost if living.

MEASURES OF INFLATION

5
Various parameters are used to measure inflation like Consumer Price Index(CPI),Wholesale
Price Index(WPI) and Sensitive Price Indicator(SPI).Average inflation measured through
Consumer Price Index at 4.8 percent in July-April 2014-15 against 8.7 percent in the same period
last year while Wholesale Price Index inflation at 0.03 percent as compared to 8.3 percent last
year. Similar is the trend with Sensitive Price Indicator for 53 essential items which registered a
rise of 1.9 percent against 9.8 percent in the same period last year.WPI stayed in negative zone
for the last five months which is the reflection that inflationary pressure will further ease out in
coming months. The overall improvement in price situation reflects the transport and imports a
cost that has caused deceleration in WPI.

1.3. CURRENT STATUS OF THE SUBJECT MATTER:-

Consumer prices in Pakistan rose 4.17 percent year-on-year in April of 2016, following 3.94
percent growth in the previous month. It was the highest reading since December of 2014,
mainly due to an increase in cost of food and gas. On a monthly basis, prices surged 1.55
percent. Inflation Rate in Pakistan averaged 7.90 percent from 1957 until 2016, reaching an all
time high of 37.81 percent in December of 1973 and a record low of -10.32 percent in February
of 1959. Inflation Rate in Pakistan is reported by the Pakistan Bureau of Statistics.

In May 2015 the inflation rate was on its peak on 11.4 percent comparing the two year 2015-16
as we are seeing current situation of inflation in the country. The least rate was in September and
October of 2015 which was 3.4 percent in both the months and the latest period is April 2016
and the ongoing percentage of inflation in the country is 4.4 percent.

In Pakistan, most important categories in the consumer price index are food and non-alcoholic
beverages (35 percent of total weight); housing, water, electricity, gas and fuels (29 percent);
clothing and footwear (8 percent) and transport (7 percent). The index also includes furnishings
and household equipment (4 percent), education (4 percent), communication (3 percent) and
health (2 percent). The remaining 8 percent is composed by: recreation and culture, restaurants
and hotels, alcoholic beverages and tobacco and other goods and services. This page provides the
latest reported value for - Pakistan Inflation Rate - plus previous releases, historical high and
low, short-term forecast and long-term prediction, economic calendar, survey consensus and

6
news. Pakistan Inflation Rate - actual data, historical chart and calendar of releases - was last
updated on May of 2016.

SECTION # 2 LITERATURE REVIEW

ARTICLE # 1:-

OBJECTIVE:

Impact of inflation:

The objective of the article is that inflation has become a persistent and increasingly important
fact of economic life in United States in recent years. Inflation is running in excess. Significant
price inflation appears to be a chronic phenomenon that must be accounted for in economic and
financial decision making.

METHODOLOGY:

In this article accounting techniques have been used. The changes in financial accounting
requirements are likely to be reflected almost immediately in managerial accounting procedures,
with specific implications for marketing decisions.

MAIN RESULT:

One major result will be significant changes in cost estimates and asset valuations.

SUMMARY:

The summary of the article is as follows:

1. Persistent inflation causes firm profits to be over–stated by traditional, generally accepted

accounting principles.
2. Large publicly held firms are now being required to disclose a combination of constant
dollar and current replacement cost adjustments to historical cost accounting data.

7
 3. Corporate managements are likely to make increased use of inflation –adjusted financial
data in their decision making as these data become the generally accepted measures of
performance used by investors and stockholders in evaluating management.
4. Marketing managers will be evaluated by a more complex set of measurements with
emphasis on those relating to asset utilization.
5. Virtually all areas of marketing decision making will be influenced but the most affected
are likely to be pricing and distribution.

CONCLUSION:

Marketing managers will need a better understanding of accounting and financial management
than that of their predecessors. The characteristic marketing manager’s emphasis in analysis and
action on sales volumes, gross margin, and market share must be replaced by a more general
management focus on bottom-line profitability and return on investment.

ARTICLE # 2:-

OBJECTIVE:

Indexation and the Effect of Inflation Uncertainty on Real GNP:

The objective of this article is to examine the combined effect of inflation uncertainty and
indexation on the growth rate of real GNP.

MAIN RESULT:

The greater indexation partially reduces the adverse effect of inflation uncertainty on real GNP
growth over time. A preliminary assessment of whether the discrepancy is the result of inflation
uncertainty permanently affecting the growth rate of the capital stock is inconclusive.

SUMMARY:

Inflation uncertainty cannot permanently affect the growth rate of employment because, in
principle, demographic factors should determine long-term employment growth. A restriction is

8
inappropriate for output. There was a negative effect of a higher level of inflation uncertainty on
the growth rate of real GNP, though none of them explicitly considers the effect of indexation.
Furthermore, there was also a negative association between the variance of inflation and the level
of investment, also a rise in monetary variability, which is positively related to the model of
inflation uncertainty, leads to a reduced growth of capital stock. Empirical evidence suggests that
inflation uncertainty causes a significant reduction in real GNP growth that is only partially
offset over time by increased indexation. Investment effects in causing the discrepancy between
the effects of inflation uncertainty on real GNP and employment.

The current level of indexation adjusts only partially to its desired level during a single period
because of multi period contracts. With fixed nominal wages, an increase in inflation uncertainty
reduces the supply of labor offered by risk-averse workers and the demand for labor by risk-
averse employers. Indexation offsets the decline in equilibrium employment, however, because it
helps insulate the real wage from the effects of unanticipated inflation.

CONCLUSION:

The full adjustment of the economy to greater inflation uncertainty might take decades, but this
article considers only a few years. It is, therefore, possible that analysis does not capture the full
effect of increased indexation, especially capital market indexation, because of the limited data
and sample period.

ARTICLE #3:-

OBJECTIVE:

The impact of Inflation on the Aggregate Debt-Asset Ratio:

Inflation is likely to increase the aggregate debt-asset ratio when personal income tax schedules
are indexed to the price level and/or when leverage-related costs are relatively high and the
personal tax rate on income from holding common stocks is relatively low.

MAIN RESULT:

9
The effect of inflation on firms’ capital structure concludes that inflation enhances debt
financing. Nominal interest payments consist, in part, of true interest payments and, in part, of
compensation for the reduction in the real value of the principal.

SUMMARY:

Firms are allowed to deduct their entire interest expense, including the portion that is a return of
principal, reduces their cost of debt capital. Equilibrium debt-capital ratio rises when the
inflation rate rises. Equilibrium in the economy is characterized by the investors who, for tax
reasons, are specialized: investors whose personal tax rates are below some critical tax rate hold
bonds only, and those whose tax rates are above the critical rate hold stocks only. The aggregate
debt-asset ratio is therefore determined by the wealth of investors holding bonds relative to the
wealth of all investors. Inflation has two effects on the aggregate debt-asset ratio:

1. Critical tax rate is not affected by inflation, since inflation pushes investors into higher
tax bracket it reduces the wealth of investors who prefer to hold bonds relative to the total
wealth of all investors. Hence, this “bracket creep” effect lowers the aggregate debt-asset
ratio.
2. When personal tax rate of the marginal investor is below the corporate tax rate, inflation
increases the critical tax rate that sorts out investors into bondholders and stockholders.

This suggests that “critical rate” effect tends to increase the aggregate debt-asset ratio. The net
impact of these two effects can be determined theoretically. The inconclusiveness of this
theoretical result is reflected also in the empirical evidence concerning the impact of inflation on
the aggregate debt-asset ratio.

CONCLUSION:

All firms are identical, implying that no diversification of common stock is possible. Investors
who, for tax reasons, prefer holding common stock will hold portfolios of stocks. This will only
reduce the risk premium required by stock holders since the risk contribution of each stock to the
portfolio is lower when diversification exists.

10
 ARTICLE # 4:-

OBJECTIVE:

The irrelevance of Capital Structure for the Impact of Inflation on Investment:

Corporate investment decisions are affected by inflation. The cut-off rate of return on investment
declines with anticipated inflation independent of financing. However, if the real interest rate
rises with inflation, inflation may increase the cut-off rate.

MAIN RESULT:

The form of financing is relevant in assessing the effect of inflation on investment. When the
equilibrium relationship between market rates of return on bonds and stocks is considered, the
effect of inflation on investment is independent of the capital structure.

SUMMARY:

Effect of inflation on firms’ demand for investment depends on the impact of inflation on market
rate of return and not on the firms’ capital structure. Empirical findings have shown that the
market real rate of interest on bonds is less affected by inflation than the real rate of return on
stocks. The studies indicate that “Fisher Effect” is a good approximation of the effect of
anticipated inflation on interest rates on bonds. The real rate of return on common stocks
declined substantially in the last two decades. Inflation enhanced firms’ demand for investment.
Initially this seems to be counter intuitive however it may be better understood if other real
effects that may accompany inflation are considered. Inflation may be partially caused by
expectations of a decline in the level of real activity in the economy.

The decline in the real activity brings about a decline in the real state of return on common
stocks and in the level of investment. In this case, the effect suggested in this article merely
mitigates the negative effect caused by real changes in the economy. Inflation increases the cut-
off rate of return and then depresses firms’ demand for investment. Real rate of return on stocks
is independent of inflation.

CONCLUSION:

11
Inflation may be negatively correlated with the rate of return on stocks and with the level of
investments, even when inflation enhances firms’ demand for investment.

ARTICLE #5:-

OBJECTIVE:

The Impact of Inflation on the Real Income of U.S. Farmers:

Inflation is non-neutral with respect to farm prices. Despite the importance of this issue, the short
comings of the analysis severely limit its contribution to the inflation and agriculture literature.

SUMMARY:

The changes in agricultural prices consist of a relative component caused by shifts in supply
and/or demand schedules and a nominal component associated with the trend rate of growth of
the money stock. SMW explicitly ignore variations in agricultural output, however, and
implicitly assume that each observed annual price change is wholly a nominal change unrelated
to price controls, real aggregate demand, energy shocks, and other factors that affect relative
prices- but have little to do with the causes and effects of inflation. A conventional viewpoint
maintains that inflation is caused by excessive growth in the money stock, affects only nominal
values in the long run, and causes changes in relative prices in short run only if some of the
inflation is unanticipated. In contrast to acknowledgement of unanticipated inflation, SMW never
treats it empirically.

The chosen sample consists of three wars, The Great Depression, Several episodes of Price
control and Supply disruptions, but none of these factors is dealt with in statistical tests.

CONCLUSION:

Inflation is affected by the firm prices. The changes that occur in agricultural prices are highly
affected by the inflation. They affect the nominal values in the long run, and cause changes in
relative prices in short run only if some of the inflation is unanticipated.

12
 ARTICLE # 6:-

OBJECTIVE:

The impact of inflation on distribution of income and wealth:

The purpose of the article is to estimate the effect of inflation on size distribution of wealth and
income through use of micro data file.

MAIN RESULT:

Our stimulated inflation reduce the share of top income group even more when the distributed
profits are more allocated to shareholders

SUMMARY:

In summary while much more could be said to the forms and extents of redistributions revealed
by this study and more refinements could be introduced to the models themselves they are not
likely to alter our findings on the rather modest extent of redistributive effects of changes in the
rate of inflation or in the pattern of changes in the real income or net worth the stimulations
reveal. The dividend adjustment coefficient is the product of elasticity of dividends with respect
to corporate cash flow and elasticity of cash flow .The results of simulated inflation using
alternatively a rate of 2% and a rate of 5% are summarized the first for the net model about the
other for income concept no. ,only type corresponds to owner occupied dwellings and checking
accounts and only money interests received, to savings accounts ,in money income concept
although the imputations for such missing rents and interests are included in OBE’s per social
income .

CONCLUSIONS:

The extent of redistribution revealed by this study and more refinements could be introduced into
models themselves .They are not likely to alter our findings on the rather modest extent of

13
redistributive effects of changes in the rate of inflation or on the patterns of change in the rate of
inflation or in the patterns of change in distribution of real income or net worth that the
stimulations reveal.

ARTICLE # 7:-

OBJECTIVE:

Fisher .Phillip and Friedman and measured impact of inflation on interest

The objective of this article is to clarify the meaning of fisher effect and show the unimportance
of money in that effect.

MAIN RESULT:

The correction for auto correlation which Taylor proposes is to find unnecessary for our
equations and to render Taylor’s money growth insignificant. The difference between this result
and Taylors own appears to be result from the alterations of the original data that which correctly
reflected biannual formation of inflation.

SUMMARY:

Taylor statement for the fisher hypothesis make clear the basis of disagreement with us .A
change in the expected rate of inflation will induce an equal change in nominal rate and reveal
the real state un altered .We argued somewhat different ,as did fisher that if we control short run
real effects the nominal rate interest will fully reflect the true long run impact of higher
anticipated inflation .Our model is meant to suggest the basis for appearance in studies which do

14
not control for such short run effects .It is Taylor’s hypothesis that we do not carry money
supply from our structural equations to reduced forms. Indeed we do not but we can show our
equations. Taylor has made the error that he attributes to us namely he has failed to carry forward
a significant variable.

The inflation uncertainty was a central part of original paper and Taylor does not use it in his
estimates. It is ultimately clear that no one needs to carry money supply in reduced form.

CONCLUSION:

Our conclusion concerning the Fisher effect remains unaltered from our original paper. Taylor’s
comment it appears to be resulting from misunderstanding of our purpose in separating out other
effects.

15
 ARTICLE # 8:-

OBJECTIVE:

Wage indexation and effect on inflation uncertainty on unemployment:

The purpose of the article is to estimate the impact of inflation uncertainty on employment, while
considering the second-round effects of labor market adjustments to reduce the risks associated
with inflation uncertainty.

MAIN RESULT:

Greater the uncertainty related to higher inflation leads to misallocation of resources because of
shorter duration of contracts and reduced efficiency of price system. The result is reduced
economic growth and possibly unemployment over the fairly long term.

SUMMARY:

The article suggests that the evidence presented above suggests that a permanent increase in
inflation uncertainty cause the level of employment to fall below its constant growth rate trend,
but a subsequent rise in wage indexation causes it to move back toward trend. In this sections
simulation are performed using the estimates from table 1 and 2 to illustrate this point. Although
the simulation period is 20 years, the simulated values beyond the first few years are not meant
to be taken as precise estimates. Despite the similarity in the numerical estimates of the impacts
of inflation uncertainty and wage indexation on both employment and employment growth
between the two set o f data, the estimates have different implications. If each measure if
uncertainty were to increase by the amount that occurred on average between the periods 1961-
72 and 1973-83, the effect of both inflation uncertainty and indexation on employment would
be much greater in the SRC regression then in the Livingston regressions

This result is also consistent with employment being completely demand determined in
disequilibrium, as specified by Gray and by Stanley Fischer (1997). Furthermore, it is consistent

16
with the implications of the model incorporating rational expectations and market clearing, such
as that of Robert Lucas (1973), in which unanticipated inflation causes employment to rise
above its ‘’Natural’’ level. The equation were also run in an even less restrictive form in which
separate coefficients for the interaction between indexation and the actual inflation rate and
between inflation and the expected inflation rate were estimated.

CONCLUSION:

The evidence presented here indicates that a permanent increase in inflation uncertainty has a
depressing influence on employment initially, but then the labor market adapts in a way that off
sets most of the effects in later period.

ARTICLE # 9

OBJECTIVE:

The effect of inflation on stock market:

The objective of this article is to study the non recurring inventory profits and inadequate
depreciation reserves for replacement of assets that had resulted from inflation.

MAIN RESULT:

Interests rate decline only moderately to a level still above their long term range .The current
price of stock becomes low if the expectation of 1% annual creeping inflation above the
fundamental historic one is being widely discounted.

SUMMARY:

The argument that a progressive inflation is inevitable ascribes its certainty to strength of labor
unions and their insistence on obtaining wage advances exceeding the increase in labor activity.
In the face of these demands there is unwillingness to accept the cost and risk of long strike.
Only when serious over production or active competition among different countries exist or
17
where labor is poorly organized plentiful and immobile, is there much incentive for management
seriously to oppose wage rises which exceed increased output per power. The government
likewise walks gingerly into precincts of this cause of inflation. Peer exertions to keep all the
costs low are lavished indiscriminately on capital and labor .The individual investor pays income
tax on dividends and interests, but with the recent advantage for the former. It is difficult to
estimate the impact of income tax on stock and bond prices.

The evaluation of the equity investment is not so simple .The net worth of a business during
inflationary period is undervalued by our present method of accounting which depend on the
actual cost .The depreciated book value of the fixed asset is less than their actual market value .

CONCLUSION:

Our conclusion from this appraisal is that fear of inflation on that steady continuing basis which
seems not unlikely justifies the current level of the stock market ,if interest rate ,earnings and
dividends are maintained. In any event where so many other intangible forces play on the stock
market and affects its level, we cannot presume to predict its course.

ARTICLE # 10:-

OBJECTIVE:

Sources and impacts of Inflation in Pakistan:

The objective of this study is to incorporate all the possible structural and monetary variables
being tested for high and low inflation period as well as for long period.

MAIN RESULT:

The test of causality between inflation, saving and economic growth indicated that inflation has
negative impact on savings .However it improves the foreign inflow of capital which increases
the investment .The net impact of inflation is growth promoting.

SUMMARY:

18
Constant growth in money does effect the inflation. The empirical results show that inflation is
not a monetary phenomenon in Pakistan .Structural variables like the growth of non commodity
producing sector, public debt, and import prices were also the significant determinants of
inflation in Pakistan. Such sources of inflation have not been identified yet so far .The deficit
financing of the budget has been done through public debt and institutional credit such a source
is found inflationary. The inflationary sources of the inflation for the period of 1970 were
different from that of 1980’s.It may be noted that inflation was relatively high during 1970’s than
that of 1980’s.During 1970 the monetary policy did not clearly describe the phenomenon. Beside
inflation was influenced by the price expectation, which might be due to the changes in
international factors.

During the 1980’s it was observed that the monetary variables and the growth of variable service
sectors significantly affected inflation. The growth of economy was improved which also
crowded out some effect of inflation.

CONCLUSION:

In this study we have attempted to Point out major sources of inflation in Pakistan .Monetary and
structural variables were tested to identify the major determinants of inflation. Besides the
impact of inflation on saving, investment and economic growth was also investigated. Study
reveals that in order to control inflation equal attention should be paid to monetary and structural
policy.

ARTICLE # 11:-

OBJECTIVE:

Impact of inflation on industrial worker:

The purpose of the article is discuss the impact of inflation on industrial workers that how
inflation effects on their lives, their wages and etc. and also the purpose of the article is to
discuss the speed inflationary impact of money on the hub of people.

SUMMARY:

19
A person has several needs besides his basic physiological needs as a man does not live by bread
only. It is, however, true that his whole attention is directed towards securing bread only when its
availability is threatened. Because of fundamental character a threat of deprivation to the basic
physical needs makes them all persuasive and compelling as motives and temporarily suspends
the operation of higher order needs. An industrial worker, drawn into the whirlpool of escalation
of prices not only from year to year but also from month to month, in the recent years, is now
confronted with the problem of survival. The examination of working class consumer price index
number and the prices of few important items which are daily consumed by workers highlights
the hardships of industrial operatives arising out of the present country-wide inflator trend.

On the basis of family budget inquiry among the Calcutta working class population in the year
1958-59 a weight of 12.6 has been assigned to the miscellaneous group which has recorded a rise
of nearly 26 percent in 1974 February and miseries do not end there. Simultaneously, which can
be described as necessaries like kerosene oil, soft coke and bread etc. have virtually disappeared
from the open market. This has compounded the hardships of a large majority of workers who
are already living below or near the poverty line and has induced a mood of despair and
disillusionment among the workers in general. Food group was most adversely affected as it rose
from 217(group index average of first six months) to 248(group index average of second half of
the year).

CONCLUSION:

All the factors enumerated above in the summary lead to point that industrial workers who have
been just above the poverty line a few months back are now speedily drifting below the poverty
line, swelling the number of starving masses. Now, in reviewing all these it can easily be
observed the significant and speedy inflationary impact of money on the hub of people, the poor
is getting poorer at such a speed that one cannot possibly dream even.

20
 ARTICLE # 12:-

OBJECTIVE:

The effect of inflation and real wages on employment:

The purpose of the article is to consider the effects of inflation on employment. The absence of
index-linked loans, and the possibility that errors are committed in times of inflation, leads to a
higher probability of bankruptcy during inflation.

SUMMARY:

The demand of wage earners falls substantially because they have few assets while recipients of
profits do not increase their demand by very much if the rise in profits is regarded as transient.
Also profit earners have a lower propensity to consume the produced goods than wage earners
because they devote a higher proportion of their income to the non-produced good. The
estimated real wage elasticity is extremely sensitive to the actual list of their variables that are
included. Once we allow for the richer specification of the demand for labor, the estimated real
wage elasticity is no longer significantly negative. The issue of whether high real wages reduce
aggregate labor demand remains unsettled, the econometric evidence is simply too inconclusive
and fragile for it to bear any other interpretation.

Also if firms care about bankruptcy, this implies a lower level of employment. Higher inflation
may substantially decrease employment. It is extended to an imperfectly competitive firm to
investigate empirically the effects of aggregate demand and multi-period uncertainty. Also the
government’s objective is to reduce the rate of inflation, thereby promoting a sustained growth of
output and employment. All these influences are important are important but a negative real
wage elasticity is not robust.

CONCLUSION:

Higher inflation can lead to lower employment because it would raise the probability of
bankruptcy if loans were formally unindexed and because various valuation errors are
committed. If indexation were introduced the former would not occur and the latter would be
much less likely to occur. It is less likely that valuation errors will be committed because there

21
might be an important externality here. Also the demand for labor is influenced by relative
prices, aggregate demand, uncertainty and inflation.

ARTICLE# 13:-

OBJECTIVE:

Uneven impact of inflation on different categories of labor:

The purpose of this article is to understand the nature of impact of inflation on different labor
categories both at an all India level and at an inter-regional level. A disaggregated analysis has
been done to find answer to the question as to why certain regions and/or states are still lagging
behind. The inflation levels would be related to the poverty ratios to see the differential impact.

METHODOLOGY:

The paper is based on secondary data obtained from Statistical Abstracts of India for various
years of data based on Consumer Price Indices for Agricultural Laborers (CPIAL) and Industrial
Workers (CPIIW).Poverty ratios are based on the estimates arrived at by the expert group
constituted for the same. Analysis is done on the basis of rates of growth calculated for CPIAL
and CPIIW for the period of 1980-93.After collection of data on CPIAL and CPIIW at a general
level, the same was done for two categories of goods in the consumption basket namely, food
and non-food.

SUMMARY:

During the decade of eighties, the ALL India CPIIW rose from an absolute value of 441 in 1981
to 830 in 1990, thereby registering a growth rate of 8.82 percent per annum. On the other hand,
the general index for CPIAL rose from 395 to 708 during the same period, thus showing a
growth rate of 7.92 percent per annum. By the end of the year 1994, the general index for CPIIW
has risen 1221 and for CPIAL TO 1247.Comparing these figures with those in the year 1990,

22
that at an All India level CPIAL increased at a rate of 7.61 percent per annum, while for the
industrial labor, the index increased only at a rate of 4.71 percent per annum. It is obvious that at
All India level, in terms of the growth rate for the general index of CPIAL and CPIIW, the price
rise had more of an adverse impact upon the agricultural labors.

At a further disaggregated level, one finds that an All India level, the CPIIW for food items
during 1981-90 was increasing at a rate of 8.41 percent per annum, while for CPIAL the
corresponding figure was relatively low at 7.95 percent per annum. In the period after 1990, the
CPIIW for food items registered an increase of 5.27 percent per annum and CPIAL was rising at
an annual rate of 7.58 percent. Once again, if the entire period under the study is taken together,
the CPIIW was found to have risen at a rate of 7.53 percent while the CPIAL for the food items
registered an increase of 8.88 percent per annum. It is thus revealed that both at general level and
in case of food items, the increase in the price levels had an uneven impact on the two categories
of labor.

CONCLUSION:

The above results thus help one to arrive to a conclusion that inflation had more of an adverse
impact on the agricultural labor as compared to the industrial workers. These differences also
revealed at a regional level. But an important observation is that even within a group of category
of workers, there are large deviations from the national averages. This emphasizes the
importance of looking at such variables both at an aggregate level as well at the regional level.

ARTICLE # 14:-

OBJECTIVE:

Impacts of inflation on the food and agricultural sector:

The purpose of this article is to apply the analytical tools of the profession to measure the
impacts of inflation on a particular economic sector.

SUMMARY:

23
This article by Kite and Roop represents an attempt to apply the analytical tools of the profession
to measure the impacts of inflation on a particular economic sector. Unfortunately, the work is
flawed in many ways in several major aspects. Most significant amongst the paper’s problems is
the failure of the author’s failure to conceptualize and define inflation properly. Kite and Roop
claims that inflation has its origin in the microeconomic price increases i.e, microeconomic price
increases in one sector through their initial effect on consumer demand and their direct and
indirect effects on costs of intermediate materials in other industries, can lead to inflation in the
macroeconomic sense.

Clearly, this conceptualization and casual explanation is contrary to the most elementary
principles of macroeconomics. The fundamental problem with the Kite-Roop conceptualization
of inflation is the failure to distinguish between inflation and price changes. Elementary
economic theory represents that any individual product price change can be decomposed into
two parts: one part caused by nominal or money changes and the second part by real changes in
the individual’s product market. Only the former influence is properly termed as inflationary
impact, i.e., inflation is properly defined as a rise in the general price level resulting from
macroeconomic changes.

CONCLUSION:

Such research should include an understanding of the macroeconomic casual forces affecting
inflation, which necessitates an incorporation of money supply generation and growth. The latter
is particularly important because the money supply is a policy variable which can be manipulated
by policy makers to influence the rate.

ARTICLE # 15:-

OBJECTIVE:

The tax effects of inflation:

Indexing historical cost accounting to inflation has received considerable attention in the
accounting literature. From a tax perspective, it is often argued that with historical cost
accounting inflation increases effective corporate tax rates, ceteris paribus.

24
SUMMARY:

As we all know that there is inverse relation between the use of historical cost and depreciation
and effective corporate tax rates and the tax deductibility of nominal interest when assets are at
least partially debt financed. This both nominal interest and historical cost depreciation would
have to be adjusted to take into account fully the tax effects of inflation in real cash flows.
However, we know of no explicit model of the combined effects of the rate of inflation,
depreciation indexing and the proportion of assets that are debt financed on real cash flows both
to the firm and to the equity investors.

Equity values and stockholder wealth depends upon the total tax picture, not just the corporate
tax effect. An interesting result is the increase in the stockholders effective tax rate because of
the historical cost depreciation tax shield is completely independent of the amount of debt
financing used by the firm. Firm and stockholder cash flows increase exactly by the rate of
inflation if depreciation indexing is allowed and stockholder tax rate is zero. In this case, the
level of debt financing plays no direct role in maintaining the effective tax rate.

CONCLUSION:

A complete program for neutralizing inflation’s effect on firms and shareholders would require
indexing the depreciation shield and the capital invested by shareholders and indexing the
principal paid by lenders to finance assets so that the inflation premium is neither a tax deduction
nor a taxable income.

25
 ARTICLE # 16:-

OBJECTIVE:

The Impact of Inflation on the Composition of Private Domestic Investment:

This paper concerns itself with a specific facet of inflation, namely the probable impact of
inflation on the composition of investment.

METHODOLOGY:

Accounting techniques (Calculation of Net Cash Flows)

MAIN RESULT:

Inflation, or the expectation of inflation, is generally accompanied by three major factors that
have a bearing on the composition of investment: (1) a magnification of the illiquidity risk; (2)
uncertainty; and (3) a changing spectrum of profit opportunities arising mainly out of measures
taken to correct the symptoms of inflation. It is here suggested that the impact of inflation on the
direction of investment may be explained by these factors.

SUMMARY:

There are obvious flaws in this analysis of the observed relation- ship between the rate of
inflation and the marginal output/capital ratio. The first arises from the difficulties inherent in the
statistical calculation of the ratio. The net addition to output derived from a unit of investment is
conceptually difficult and statistically almost unmanageable. In an economy in which the level of
consumption and the terms of trade are constantly subject to the impact of cyclical or random
changes, it is virtually impossible to determine statistically what the net addition to output of
total net investment is at any given period. Further, it can be argued that there are compelling
difficulties in computing the "real" domestic product in a period of sharp inflation.

If, for instance, national income data were to show a "com- putted" 5 per cent increase in real
output and a 30 per cent increase in prices, the "true" figure for real domestic product might vary
within not too negligible a margin. Also, it may well be that this bias in the data is not uniform

26
all along the period under observation for any one country. However, the pertinent question is
whether there is reason to believe that the bias is so distributed that it will cause a lower
output/capital ratio during periods of inflation.

CONCLUSION:

Recent literature on the problems of economic growth has assigned a central role to capital
formation. Attempts at what is now termed "development programming" place considerable
emphasis on measures designed to raise the rate of capital formation and to exert some guidance
over the channeling of investment resources into what is believed to be their most productive
uses. Though this latter objective has been recognized to be of paramount significance in the
process of growth, surprisingly little attention has been devoted to what may be one of its more
important aspects.

ARTICLE # 17:-

OBJECTIVE:

The impact of inflation on Tort Compensation:

The point of departure for any legal discussion of inflation and devaluation is the nominalist
theory of money,' according to which an obligation to pay a certain sum of units in a given
currency remains unaffected by changes in the value of those units; hence any decrease in
purchasing power will be disregarding.

MAIN RESULT:

Most sensitive is of course the impact of inflation on social security, including workmen's
compensation. The class of beneficiaries is both large and politically effective. This has resulted
in two consequences: first, demands for increases of benefits to counteract their loss of
purchasing power have on the whole been successful; secondly, the adjustment has generally
been assumed by the legislature rather than by courts, if only because the financial dimensions
are bound to have a noticeable impact on the whole state of public finance.

27
SUMMARY:

Overall, the judicial response to the problem of inflation has been gingerly, the problem being
described as either "exceedingly difficult" or even "necessarily insoluble under the principle of
lump-sum recovery." At first, the dominant judicial attitude was brusquely negative, in the hope
no doubt that the problem would just fade away. Also, some judges with a notorious pro-
defendant bias were concerned to resist any further escalation of tort damages and saw
themselves as champions of the public interest. But when the problem remained recalcitrant, a
general retreat set in, frequently accompanied however by the familiar pretence that the line had
really been held. So much for the vaunted common law technique, charitably referred to as
pragmatism or, more truly, "trial and error." Two aspects of the problem have been treated as
beyond controversy.

First is the proposition that, in view of intervening inflation, past awards do not provide a safe
guide for assessing damages today. Indeed most of the older judicial pronouncements that
inflation may be taken into account in assessing damages, address themselves to this aspect
alone.52 By the same token, the ever-escalating level of awards which attracts attention in the
popular press reflects for the most part only the effect of continuing inflation on present-day
medical costs and earnings as compared with those of yesteryear.

CONCLUSION:

Foremost but least persuasive has been the argument that future inflation is too speculative, both
as to incidence and rate. But ignoring inflation is, in essence, the same as predicting that it will
not occur. Moreover, the argument sits ill with the absence of any judicial compunction over
reducing gross damages by contingencies-like illness, unemployment and in England even
income tax-which are at least as speculative.

28
 ARTICLE # 18:-

OJECTIVE:

Microeconomic Impacts of Inflation on the Food and Agriculture Sector:

The O'Carroll paper addresses several inflationary impacts on farm firms. I will start by
critiquing the issues addressed and then turn to a discussion of additional work that might be
beneficial.

MAIN RESULT:

The results for alternative tenure situations suggest that the full-renter grew at a faster rate, but
that the full-owner added considerably more equity to his farm in thirty years. Inclusion of a
positive real rate of growth in real estate values (as noted above) would en- able the full-owner
both to grow at a faster rate and to add to equity more rapidly than the O'Carroll results indicate.
This would make the full-tenant less competitive relative to the full-owner.

SUMMARY:

The assumptions concerning the availability of off-farm employment and family living
requirements are the same for all farms, another reason for similar growth rates across alternative
farms. In each case, off-farm employment was considered to be available at $7.50 per hour for
operator labor not required by the farming operation, regardless of the season of availability.
Furthermore, consumption for the family of four was assumed to be a constant $12,600 in 1979
dollars. Both the low and constant real consumption level as the family's age and financial
situation changes appears unrealistic. For these reasons it is difficult to agree either that a wide
range of firms was considered or that the results obtained are indicative of the firms analyzed.

CONCLUSION:

The farm-level analyses on specific sets of price changes would estimate differential impacts of
inflation for alternative re- source situations including land qualities, tenure, size, equity, etc., as
desired. This approach is a potentially richer source of data on the firm level impacts than using
models which ignore shifts in production methods and product mix, production and price

29
uncertainty, and income tax effects. The approach would estimate the rate of return to land,
labor, capital and management by size and type of farm rather than assuming they are constant in
real terms for all farm types.

Articles # 19:-

OBJECTIVE:

The impact of inflation on Capital Gains:

The present system of taxing capital gains should be modified to permit an adjustment of the cost
of capital investment and reflect the change in the purchasing power of the money invested. This
could be done with no serious difficulties by the use of indexes prepared by the Treasury
Department,

METHODOLOGY:

Accounting Calculation of Bonds and Stocks Yields

MAIN RESULT:

The legal research program of the Duke University School of Law is entering its ninth year of
operation with a wide reputation for quality legal research and writing. The program is designed
to give experience to second- and third-year law students and to provide as sistance to members
of the bar across the country. Last years the program prepared 110 memoranda for 92 lawyers in
32 states.

SUMMARY:

Any discussion of capital gains should distinguish the essential difference between the nature of
capital and current income derived from labor or the use of capital. Capital is largely derived
from savings out of past income and is, in turn, used to produce current income in the form of
dividends, interest, rents, etc. This income is taxed in the same manner as income from other
sources. It should also be remembered that income derived from the use of capital supplied by in

30
vectors to corporations is taxed when earned by the Corporation; that income where paid out in
the form of dividends is taxed a second time in the hands of the investors.

Capital gains do not represent income in the same sense. They are only a measure of the increase
in dollars over the number of dollars initially invested. Under the present system of capital gains
taxation, "apparent gains" are taxed as well as "real gains." To limit taxation to real capital gains
there must be an adjustment of the initial investment to reflect the change in the purchasing
power of that investment. There have been suggestions that the laws be amended to provide
"rollover" provisions comparable to taxation of residential property. This would indeed be an
improvement and would free investments now held because of reluctance to pay a capital gains
tax on a large gain. However, even under a rollover system, when a capital gains tax is finally
applied, unless there is some adjustment for the impact of inflation on the purchasing power of
the initial investment, there may be, in fact, a confiscation of the investor's capital. I do not
contend that capital gain should not be subject to tax, but it should be recognized that in many
cases a tax on capital gains is a capital levy and, in a sense, a confiscation of capital by the
government. Thus, assume the investor bought stock for $100 when the consumer price index
was $100. Three years later, he sells this stock for $150 when the con summer price index is
$150. Under present law, he has a $50 long-term capital gain subject to tax although the amount
of consumer goods he can now purchase with the proceeds of the sale is no greater than the
amount of the goods he could have purchased at the time of the original investment.

CONCLUSION:

The present system of capital gains taxation should be modified to permit an adjustment of the
cost of capital investment in equities and reflect the change in purchasing power of the dollars
invested. This could be done by the use of indexes which the Treasury Department would be
responsible for preparing and publishing.

31
 ARTICLE # 20:-

OBJECTIVE:

The Differential Impacts of Inflation on Southern Plains Farms by Selected Farm

Characteristics:

This paper focuses on microeconomic effects of inflation, reporting the results of simulating the
effect of inflation on Southern Plains farms which differ by such features as enterprise mix, size,
tenure, and growth strategy.

MAIN RESULT:

First the effects of inflation rates on the growth of equity in the three benchmark farms under
various growth strategies are presented. Then the effects under inflation of initial farm size,
initial land equity rate, and size of off-farm income are presented. Third, the impact of tenure
under inflation is examined.

SUMMAR:.

The growth rates of net worth under inflation first trended upward and then trended down- ward
slightly. The peak growth rates were reached between 3% and 7% inflation; most, however,
peaked at 6% or 7% inflation. The proportional impact on net worth growth rate from 6% to 12%
inflation was uniform across farms of widely differing characteristics. At highest inflation rates,
however, the growth rate of equity tended to decline. Moreover, at inflation rates above 6% cash
flow deficits were common. Although leverage ratios were low, the magnitude and frequency of
cash flow deficits were such that lenders who have not yet fully accepted the permanence of
capital gains equity would probably be reluctant to offer refinancing. If a family farm structure is
consistent with rapid expansion to an economic size unit in early years and restrained growth in
later years, results of this study indicate that low inflation rates contribute to such a structure.

Furthermore, low inflation rates allow an entry level operator with a given equity, man-
agreement, and labor reserves to purchase a large farming unit. Low inflation rates also allowed
farmers with a given equity to get off to a faster start, using cash flow surpluses to purchase more
land. With time uniform annual payments on mortgages having an increasing component of

32
principal payment, raised taxes and reduced disposable income for expansion. The situation
could be different if a given equity would have been used initially to finance purchase of as large
a farm as possible subject to equity and cash flow restraints. Initial equity was a major factor
determining the absolute growth in farm size, with full owners growing far more than renters
beginning with the same acreage. The implication is that if society wishes to restrain growth of
farms, estate taxes can play a major role by reducing equity passed to heirs who enter farming.

. Such a policy would need to be ac- companied by policies such as higher property tax rates for
nonoperational owners to discourage investment in farmland by no farmers.

Conclusion:

Expectations by the electorate that high inflation will persist could result in Congress being
pressured to index taxes to inflation. The absence of tax indexing produced the lowest growth
rate of the Oklahoma benchmark farm, 4.19% (table 5). Indexing taxes every five years was
nearly as beneficial to growth as indexing annually, and annual average income tax paid
increased by only $200. Both instances of tax indexing increased growth rates by about one-half
a percentage point above the no indexing result.

33
SECTION # 3: DATA ANALYSIS:-

34
 STATS ANALYSIS FOR INFLATION

Inflation is a persistent rise in prices overtime. It is the result of too much money chasing too
little goods. If you look at the Price Indices from year 2005 to 2015 for general products it shows
Rs.131.64 to Rs.197.74 change in price. Increase of RS 66.1 has been found from the statistical
data of past 10 years. The previous year 2014-2015 shows price Indices status of Rs.219.73 in
the category of food products as compared to non food and general products. The base year have
primarily changed from 2000-2001 to 2007-2008. Therefore CPI is calculated due to change in
base year period from year 2007-2008. The year with highest price Indices for food products is
year 2010-2011valuing Rs.286.15. Overall price Indices shows higher price in general, non food
products in year 2010-2011 as compared to other years. The core price in 2005-2006 was
Rs.126.82 but the previous year (2014-2015) shows an increase in core price by Rs.55.66
(126.82-182.48= 55.66).

The headline and core inflation in terms of general food and non food products shows inflation
with changeable margins. Inflation for general products in year 2005-2006 is Rs.7.92. The
previous year stats (2014-2015) show inflation with 4.81. The highest inflation for general
products was in year (2008-2009) with Rs.20.77. If we consider inflation in terms of food
products it shows the highest inflation in the year period (2008-2009) valuing Rs.23.70. The
lowest inflation in food products was in the previous year (2014-2015) totaling Rs.3.59
considering the stats of the past ten years from 2005-2015. The statistical appendix shows that
year 2008-2009 shows the highest inflation in all food non food and general products. General
products non food and food products shows the lowest inflation in the last year (2014-2015). The
core inflation in the year (2005-2006) value 7.5. Previous year (2014-2015) shows core inflation
of Rs.6.94. The highest core inflation was in year(2008-2009) with Rs.17.6 and the lowest
showed in the year(2006-2007) amounting to Rs.5.9. Inflation for all categories of products
fluctuated from year to year due to social, political and economic aspects.

35
36
37
 STATS FOR EMPLOYMENT

Inflation reduces employment opportunities within the country due to demand and supply of the
product. The effect of Inflation on employment in Pakistan will be analyzed by viewing in mind
the statistical appendix of past 10 years. The increase in population grew rapidly from year 2005-
2014. The level of population in 2005 was 153.96m, and so on increasing till 2014 (186.19m).
The workforce employment level is still increasing since 10 years and in 2013 employed labor
force was (56.58m). In the year 2014 labor force and employed people rate just decreased by a
minor margin. Number of workers employed in 2005 was (43.22m).Labor force reported at
(60.09m) and employed labor at (56.52m). The difference in employed labor was by 0.06m in
the year period 2013-2014. Along with population, labor force also increased from 2005-2013.
The reason for increase in the labor force per year is due to increase in population.

Labor force reported to be employed in Pakistan in major sectors like Agriculture, Mining &
Manufacturing, Construction, Transport, Electricity & Gas, Trade and other important sectors of
Pakistan. The rate of employed labor force was fluctuating in terms of increase and decrease.
From year 2004-2007 it was increasing after 2007 the next two years rate of employed people
remained constant by 0.36m.Then the following increase and decrease took place till 2014. Since
2004 Agricultural sector provided most employment opportunities ranging from (18.18m to
24.73) till 2013. Electricity sector gave less opportunity for employment from year 2004-2014.
In 2014 employment level was 0.27m as compared to 2013 which was 0.30m. A decrease is
shown by a slight margin 0.03m in electricity sector. Mining sector shows increase in
employment rate from year 2004-2014 excluding year 2008 (6.61m) which shows a decrease of
0.05m as compared to year 2007 (6.66m). In other sectors employment rate showed increase
from year 2004-2008 it then decrease from year 2009-2011, then again it shows increase till
2013. In 2014 employed people were 8.21m in other sectors. The highest number of labor force
was in Agriculture (24.57m) and trade (8.24m) sector.

38
SECTION # 4: CONCLUSION

4.1 Objective: Impact of inflation on employment in Pakistan:-

The most immediate effects of inflation are the decreased purchasing power of the rupee and its
depreciation. Depreciation is especially hard on retired people with fixed incomes, as spending
power decreases each month. Those not on fixed incomes are more able to cope, because they
can simply increase their income. Another destabilizing effect of inflation is that some people
choose to speculate heavily in an attempt to take advantage of the higher price level. Because
some of the purchases are high-risk investments, spending is diverted from the normal channels
and some structural unemployment may take place. Finally, inflation alters the distribution of
income. Lenders are generally hurt more than borrowers during long inflationary periods, which
mean that loans made earlier are repaid later in inflated rupees. Inflation weakens the function of
money as storage of value, because each unit of money is worth less with the passing of time.
The progressive loss of the value of money during a period of inflation makes the borrowers to
be less willing to use the money as standard differed payments.

To measure the price level, economists select a variety of goods and construct a price index such
as the consumer price index (CPI). This is one measure of inflation. The CPI measures inflation
as experienced by consumers in their day-to- day living expenses; it is the ratio of the value of a
basket of goods in the current year to the value of that same basket of goods in an earlier year.
By using the CPI, the inflation rate can be calculated. This is done by dividing the CPI by the
beginning price level and then multiplying the result by 100. The GDP deflator is another very
important measure of inflation as it measures the price changes in goods that are produced In
order for an economy to be successful, and employment to reach a favorable level, people not
only need to focus on gaining a better education but it is the government’s and agencies’ task to
alert them about diversifying their education. If an economy has too many doctors and fewer
entrepreneurs, it might have good health care, but it will not have innovation and new ideas to
earn profit in the economy.

39
4.2 Inflation data analysis:-

During the fiscal year 2005-2006 the CPI was 7.92 while the whole sale price index was 10.0 as
compared to year 2006-2007 where change in CPI was 7.77% and that of wholesale price was
6.94%.Sensitive price indicator was reported to be 10.82%.CPI in Pakistan was recorded at
25.3% in august 2008. The SBP kept a tight monetary policy stance during fiscal year 2008-09,
first adjusting it upwards in November 2008 while keeping it constant in January 2009.During
the year 2010 the total investment was recorded to be 24323 billion Rs while foreign savings
were 404 billion Rs .Inflation on year to year basis reveals that the CPI was highest in July 2011
at 12.4 percent. However, in December 2011 it declined to single digit at 9.7 percent. Thereafter
it increased steadily and reached 11.3 percent in April 2012. Food inflation on a year to year
basis was highest in July 2011 and lowest in January 2012 at 9.2 percent. Nonfood inflation was
lowest in July 2011 at 9.2 percent and highest at 11.6 percent in April 2012.

Core inflation during the last nine months of the year remained almost at double digit levels
except in July 2011 when it dropped to single digit at 9.5 percent Since December 2013, headline
inflation CPI declined to 7.9 percent in January and February 2014. However, it again surged in
March and April 2014 at 8.5 percent and 9.2 percent. The factor behind was increase in food
inflation which increased to 9.9 percent on account of demand supply gap. Inflation during July-
April 2013-14 averaged at 8.7 percent Continuous efforts of the government along with proactive
policy measures with favorable trend in global commodity prices, the inflation is on downward
trajectory since the start of the FY 2014-15. In April 2015, it has reached at the level of 2.1
percent the lowest since September 2003 on year on year basis. The CPI headline inflation
recorded at 4.8 percent for first ten months (July-Apr) of the fiscal year 2014-15 which is the
lowest since 2003. Other price indices also followed the same pattern of downward movements
and provided relief to the common man at large.

4.3 Main view:

It seems like inflation is becoming one of the unbreakable parts of Pakistan that will stick to the
country till the world ends .Our government really needs to wake up now otherwise inflation

40
would eat up the whole country. Government should make efforts to push economic growth
process. For this purpose Economic Revival Package should announce for the revival of
industries sector, to stimulate production and investment. Govt. should seriously try to boost
exports through increase the tax base and lowering tariffs. Govt. should announce a package for
the development of agriculture sector. Beside this a number of fiscal and monetary
measurements should take to attract industrialists and particularly foreign investment. More
Technical and vocational training facilities should be provided. In this way unemployed people
will get the chance to enhance their skills and become able to earn reasonable income. With a
view to reduce unemployment; self-employment scheme should be encouraged in true manners.

SECTION # 5: REFERENCES

http://www.jstor.org/stable/1804141

finance.gov.pk

American Economic Review, Vol. 76, No. 1 (Mar., 1986), pp. 235-243

http://www.jstor.org/stable/4529394

The Analysts Journal, Vol. 14, No. 4 (Aug., 1958), pp. 73-76

41
http://www.jstor.org/stable/20538261

Thomas J. Watson Library, Metropolitan Museum of Art

North American Review

Vol. 171, No. 529 (Dec., 1900), pp. 904-907

42