CHAPTER 1

1. INTRODUCTION
Today we are living in the global world, where economy is the main driving force for the global interactions among the nations/countries. There are many factors that become hurdles in the nourishment of the economic society; Inflation is one of that hurdles. This research is about the various causes of inflation their remedies along with the suggestion that how to rectify the inflationary situations especially in the context of Pakistans current inflation situation. At the beginning of this thesis we have started from the literature of inflation that comprises of its types, various causes, and the research thesis ends with suggestions that suggested some remedies for inflation. The thesis ends by the authors conclusions. In this thesis we have discussed some major issues of inflation gives rise to the flow of inflation, how inflation affect on people jobs their life styles, how price rises and supply goes down. We also gathered the statistical data and make conceptual map, cause & effect diagram that shows more clear view to understand inflationary situation in the context of Pakistan.

1.1 BACKGROUND

Inflation is a rise in the general level of prices of goods and services over time. "Inflation" is also sometimes used to refer to a rise in the prices of some specific set of goods or services, as in "commodities inflation" or "core inflation". It is measured as the percentage rate of change of a price index. Economists agree that high rates of inflation are caused by high rates of growth of the money supply. Views on the factors that determine
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moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply. There are many measures of inflation, because there are many different price indices relating to different sectors of the economy. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures prices that affect typical consumers, and the GDP deflator, which measures prices of locally-produced goods and services.

1.2 Aim: The Aim of this research work is to identify various Causes of Inflations in Pakistan. Achieving this aim, following objectives are obtained 1.3 Objectives: Identification of the factors that leads to inflation Provides remedies for the inflations in Pakistan Provide information for the economist to reassess & direct and indirect taxes provide useful information about causes of inflation to the novice reader economist and on expert level Provide information about the cause and effects that gives rise to inflation 1.4 Research questions What are the causes of inflation in Pakistan?
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What are the remedies for inflation to control inflation in Pakistan? How to improve economic situation through rectification of inflationary situation in Pakistan?

1.5 Expected outcomes: The research provides extensive information about inflation. The research provides suggestions to decrease the inflationary situation in Pakistan. The research will provide help to the economist how to tackle/face the inflationary situation. The research provides information about the indicators of inflations along with the remedies suggestions.

1.6 Methodology We have adopted a Qualitative approach to conduct our research work, the research is mainly comprised of Literature review, peer review and case studies the method we used to gather the data from different sources is secondary research which has already been published on books, internet, libraries organization etc. We gathered our data that are comprised of scholarly research articles and various economists sites that has provided extensive information about inflation. After literature and gathering all the information we have done some cognitive analysis to identify various factors that are causing inflation in the context of Pakistan. The sources for our Qualitative part include Books, Scholarly research articles/reviews, internet browsing, e-journals and case studies. The research also includes some statistical data that covers the quantitative part of this research up to some extent, the quantitative data gathered from the secondary sources

2. Flow Diagram of Research Work

Global inflation

literature review causes of inflation types of inflation

remedies to control inflation

Inflation in context of Pakistan

causes of inflation in pakistan remedies to control inflation in pakistan

type of inflation in pakistan

Conclusion

Recom mendations

Figure 1: Conceptual Mapping of Research Work

3. Causes of inflation
3.1 Cost Push Inflation Cost-push inflation occurs when businesses respond to rising production costs, by raising prices in order to maintain their profit margins. There are many reasons why costs might rise:

3.1.1Rising imported raw materials costs Perhaps caused by inflation in countries that are heavily dependent on exports of these commodities or alternatively by a fall in the value of the pound in the foreign exchange markets which increases the UK price of imported inputs. A good example of cost push inflation was the decision by British Gas and other energy suppliers to raise substantially the prices for gas and electricity that it charges to domestic and industrial consumers at various points during 2005 and 2006. 3.1.2 Rising labor costs Caused by wage increases which exceed any improvement in productivity, this cause is important in those industries which are labor-intensive. Firms may decide not to pass these higher costs into their customers (they may be able to achieve some cost savings in other areas of the business) but in the long run, wage inflation tends to move closely with price inflation because there are limits to the extent to which any business can absorb higher wage expenses. 3.1.3 Higher indirect taxes imposed by the government For example a rise in the rate of excise duty on alcohol and cigarettes, an increase in fuel duties or perhaps a rise in the standard rate of Value Added Tax or an extension to the range of products to which VAT is applied. These taxes are levied on producers (suppliers) who, depending on the price elasticity of demand and supply for their products, can opt to pass on the burden of the tax onto consumers. For example, if the government was to choose to levy a new tax on aviation fuel, then this would contribute to a rise in cost-push inflation. Cost-push inflation can be illustrated by an inward shift of the short run aggregate supply curve. This is shown in the diagram below. Ceteris paribus, a fall in SRAS causes a contraction of real national output together with a rise in the general level of prices.

3.2 Demand Pull Inflation Demand-pull inflation is likely when there is full employment of resources and when SRAS is inelastic. In these circumstances an increase in AD will lead to an increase in

prices. AD might rise for a number of reasons. Some of which occur together at the same moment of the economic cycle
3.2.1 A depreciation of the exchange rate:

Which has the effect of increasing the price of imports and reduces the foreign price of UK exports? If consumers buy fewer imports, while foreigners buy more exports, AD will rise. If the economy is already at full employment, prices are pulled upwards.
3.2.2 A reduction in direct or indirect taxation:

If direct taxes are reduced consumers have more real disposable income causing demand to rise. A reduction in indirect taxes will mean that a given amount of income will now buy a greater real volume of goods and services. Both factors can take aggregate demand and real GDP higher and beyond potential GDP. 3.2.3 The rapid growth of the money supply:

Perhaps as a consequence of increased bank and building society borrowing if interest rates are low. Monetarist economists believe that the root causes of inflation are monetary in particular when the monetary authorities permit an excessive growth of the supply of money in circulation beyond that needed to finance the volume of transactions produced in the economy.
3.2.4 Rising consumer confidence and an increase in the rate of growth of

house prices: both of which would lead to an increase in total household demand for goods and services
3.2.5 Faster economic growth in other countries: providing a boost to UK exports

overseas. Geoff Riley, Eton College UK, 2006

3.3. Causes of Inflation We have identified various causes on the result/effect of which leads to inflation. These causes mainly include supply side shock, domestic demands increased, rising import prices and indirect taxes. These causes have been diagrammatically shown in figure 2 by Cause and effect diagram which is also known as Fish bone diagram/Ishikawa Diagram. The cause and effect diagram is used to explore all the potential or real causes (or inputs) that result in a single effect (or output). Causes are arranged according to their level of importance or detail, resulting in a depiction of relationships and hierarchy of events. This can help us to search for root causes, identify areas where there may be problem/s (Inflation), and compare the relative importance of different causes. Kaoru Ishikawa

Su pp ly sid e sho ck
C fl a u fo u c t u s e l pr o d a ti a r g w ic an o e l a hi c e s d n i n flu r ge h c an d o il au ct u se a ti a on .

D om estic dem an d in creased

W d he de ome n i n m st th cr e an i c c e n as d o r ea its e d a n u tp u te a u d t n p p w pu g a pr re ss ar d t tin g p i ce u s re on

In flatio n

, es e d r ly a x m i l a t t bl a n m c Si d ir e als o m ai in r e e o f he , a th e . T e s s a s au s t io n t t a x a le is e c f la e c s s xc th e in d i r a e se in u ch nd r a i a s f s t ax u tie e s o e r d r ic um p o ns c

R ising im po rt p rices

rt po im g a re an s in s d R i r i ce re p ls o ide n t a ns r ta r co p o r fo n im c t o tio fa fla in

In d irect taxes

Figure 2: Cause and Effect Diagram

4. Types of Inflation

According to Rate of Rise in Price 4.1. Creeping inflation: When the rise in prices is very slow like that of a snail or creeper, it called creeping inflation. In terms of speed, a sustained rise in prices of annual increase of less than 3 percent per annum is characterized as creeping inflation. Such an increase in prices is regarded safe and essential for economic growth. 4.2. Walking inflation: When the rise in prices becomes more pronounced as compared to a creeping inflation, there exists walking inflation in the economy. Roughly, when prices rise by more than ten percent and within a range of 30 percent to 40 percent over a decade, or 3 to 4 percent a year, walking inflation is the outcome. Walking inflation presents a warning signal for the occurrence of running and galloping inflation. 4.3. Running inflation: When the movement of price accelerates rapidly, running inflation emerges. Running inflation may record more than 100 percent rise in prices over a decade. Thus, when prices rise by more than 10 percent a year, running inflation occurs. 4.4. Galloping inflation: In the case of hyperinflation, prices rise every moment, and there is no limit to the height to which prices might rise; therefore, it is difficult to measure its magnitude, as prices rise by fits and starts. If, within a year, the prices rise by 100 percent, it is a case of hyperinflation or galloping inflation. 4.5. According to the factors influences money supply and demand for goods and services. 4.5.1. Excessive money supply inflation: This is classical types of inflation, where there is an excess of money supply in relation to the availability of real goods and service/ this type of inflation is usually conceived with reference to the cyclical fluctuations in the economy, and measures of monetary control to check inflationary of deflationary trends.
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4.5.2. Cost inflation: When inflation emerges on account of a rise in factor cost, it is called cost inflation. It occurs when money incomes (wage rate, particularly) expand more than real productivity. Cost inflation has its course through the level of money costs of the factors of production and in particular through the level of wage rates. Due to a rising cost of living index, workers demand higher wages, and higher wages in their turn increase the cost of production, which a producer generally meets by raising prices. 4.5.3. Deficit inflation: When the government budgets contain heavy deficit financing, through creating new money, the purchasing power in the community increases and prices rise. This may be referred to as deficit-induced inflation. 4.6. War, post-war and peace-time inflation 4.6.1. War-time inflation: It is the outcome of certain exigencies of war, on account of increased government expenditure, which is of an unproductive nature. By such public expenditure, the government apportions a substantial production of goods and services out of total availability for war which causes a downward shift in the supply; as a result, an inflationary gap may develop. 4.6.2. Post-war inflation: It is a legacy of war. In the immediate post-war period it is usually experienced. This may happen when the disposable income of the community increases when war-time taxation is withdrawn or public debt is repaid in the post-war period. 4.6.3. Peace time inflation: By this is meant the rise in prices during the normal period of peace. Peace-time inflation is often a result of increased government outlays on capital projects having a long gestation period; so a gap between money income and real wage develops.

4.7. According to Coverage or scope point of view 4.7.1. Comprehensive inflation: When prices of every commodity throughout the economy rise, it is called economywide or comprehensive inflation. It is a normal inflationary phenomenon and refers to the rising prices of the general price level.

4.7.2. Sporadic inflation: This is a kind of sectional inflation; it consists of cases in which the averages of a group of prices rise because of increase in individual prices due to abnormal shortage of specific goods. When the supply of some goods becomes inelastic, at least temporarily, due to the physical or structural constraints, the sporadic inflation has its way. 4.8. Open and Repressed inflation: Inflation is open or repressed according to government reaction to the prevalence of inflationary forces in the economy. 4.8.1. Open inflation: When the government does not attempt to prevent a price rise, inflation is said to be open. Thus, inflation is open when prices rise without any interruption. In open inflation, free market mechanism in permitted to fulfil is historic function of rationing the short supply of goods and distribute them according to consumers ability to pay. 4.8.2. Repressed inflation: When the government interrupts a price rise, there is repressed or suppressed inflation. Thus, suppressed inflation refers to those conditions in which price increase are prevented at the present time though adoption of certain measures like price control and rationing by the government, but they rise in future on the removal of such controls and rationing. The essential characteristic of repressed inflation, in contract to open inflation, is that is seeks to prevent distribution system based on controls.

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4.8.3. Profit inflation: The concept of profit inflation was originated by Keynes in his Treatise on Money. According to Keynes the price level of consumption goods is a function of the investment exceeding savings. The considered the investment boom as a reflection of profit boom. Inflation is unjust in its distribution effect. It redistributes income in favour of our profiteers and against the wagering class. 4.8.4. Demand Pull inflation: In a market there is inter-action between the flow of money and flow of goods and services. When more money chases relatively less quantity of goods and services the excess of demand relative to supply pushes up the prices of goods and service. Such inflation, as a result of increased money expenditure; is called demand-pull inflation. 4.8.5. Cost-Push Inflation: Often the demand-pull inflation precedes the cost push inflation. When the former sets in there in an increasing demand for factors of production, the prices of these also rise, leading to raise in general prices. It is called cost-push inflation which, however, may also be due to rise in the price of imported material or even be profit inflation when entrepreneurs exploit the scarcity conditions to secure higher monopolistic gains by raising price. 4.8.6. Stagflation: The combined phenomenon of demand-pull and cost push inflation is found in many countries, both the developed and the developing. One of these situations is in the form of stagflation under which economic stagnation, in the form of a low rate of growth, combines with the rise in general price level. There are many factors contributing to this situation. The advanced countries may show slow growth on account of the maturing of the economy. But the labour unions are powerful and are successful in bargaining for higher wages which are not in keeping with productivity leading to a situation of stagflation. In the developing countries, this happens when aggregate demand increased at a fast rate due to high public expenditure and expansion of credit money which is more

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justified by the increase in real resources. Organized labour exerts its influence in rising up wages thus combining cost-push effect with the demand pull- inflation. 4.8.7. Semi-inflation: According to Keynes, so long as there are unemployed resources, the general price level will not rise as output increased. But a large increase in aggregate expenditure will face shortages of supplies of some factors which may not be substitutable. This may lead to increase in costs, and prices start rising. This is known as semi-inflation or bottleneck inflation because of the bottlenecks in supplies of some factors. 4.8.8. True inflation: According to Keynes, when the economy reaches the level of full employment, any increase in aggregate expenditure will raise the price level in the same proportion. This is because it is not possible to increase the supply of factors of production and hence of output after the level of full employment. This is called true inflation. 4.8.9. Mark-up-inflation: The concept of mark-up inflation is closely related to the price-push problem. Modern labour organization possesses substantial monopoly power. They, therefore, set prices and wages on the basis of mark-up over costs and relative incomes. Firms possessing monopoly power have control over the prices charged by them. So they have administered prices which increase their profit margin. This sets off an inflationary rise in prices. Similarly, when strong trade unions are successful in raising the wages of workers, this contributes to inflation. Michael Perkin

5. Remedies of inflation
The first panacea for a mismanagement nation is inflation of the currency. The second is war. Both bring a permanent ruin. They both are the refuge of political and economic opportunities. (Ernest Hemingway). To avoid political unrest and harmful, social and economic effects on the economy, it is the main objective of every government to take appropriate measures to control inflation. The main measures which are used to control inflation are (1) MONETARY POLICY (2) FISCAL POLICY and other measures:

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5.1. Monetary Policy Monetary policy is a policy that influences the economy through changes in the money supply and available credit. Monetary policy is adopted by central bank of a country. The various monetary measures which are used to control inflation are grouped under two heads (a) Quantitative controls (b) Qualitative controls. They are (1) Open market operations (2) Variation in bank rates (3) Credit rationing (4) Varying reserve requirements (5) Varying margin requirements (6) Consumer credit regulations. 5.2. Fiscal Policy Fiscal policy is the deliberate change in either government spending or taxes to stimulate or slow down the economy. It is the budgetary policy of the government relating to taxes public expenditure, public borrowing and deficit financing. Fiscal policy is based upon demand management i.e., raising or lowering the level of aggregate demand by controlling various expenditures, government expenditure, consumption expenditure and investment expenditure. The main fiscal measures are: 5.3. Changes in taxation If the Government of a country brings about changes in tax rates, it can help stabilization of prices in the country. For example A decrease in taxes relates increases disposable income in relation to national income hence, consumption rises at every level of national income. With the increase in aggregate demand for goods, the employment goes up in the country. A rise in tax rates has the opposite effect. A rise in taxes causes a decrease in disposable income, creates a larger budget deficit and brings relief from inflation.

5.3.1. Changes in Govt. Expenditure If inflation is at or above the level of full employment in the country, the government can bring down price level by curtailing its own unproductive expenditure. 5.3.2. Public borrowing Public borrowing is another effective method of controlling inflation. Public borrowing reduces the aggregate demand for goods and hence price level.

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5.3.3. Balanced budget Changes A balanced budget decrease has a mild concretionary effect on national income and hence on bringing down the price level. 5.3.4. Control of deficit financing For financing the budget deficit, the govt. often resorts to deficit financing. The bank borrowing and printing of new notes increases the money supply in the country and pushes up the price level. Deficit financing therefore, should be avoided to control inflation. 5.3.5. Others Measures: Apart from fiscal and monetary measures, the other measures which are helpful in controlling inflation are; (a) Price support programmed. (b) Provision subsidies. (c) Arrangements of easy availability of goods on hire purchase to stimulate demand. (d) Imposing direct control on prices of essential items. (e) Rationing of essential consumer goods in case of acute emergency holding of Friday and Sunday markets.

Since 1950s the control of inflation has become the chief objective of both developing and developed countries of the world. The government therefore takes monetary, fiscal and other measures to combat inflation. K.K.Dewett and
P.A.Samuelson

6. ISSUES IN MEASURING INFLATION 6.1. Measures of Inflation Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate. This rate can be calculated for many different price indices, including:

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 Consumer price indices (CPIs) which measure the price of a selection of goods and services purchased by a "typical consumer." Cost-of-living indices (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes. Producer price indices (PPIs) which measure the prices received by producers. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" as consumer inflation, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale Price Index. Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee. The GDP deflator is a measure of the price of all the goods and services included in Gross Domestic Product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure. Capital goods price index, although so far no attempt at building such an index has been made, several economists have recently pointed out the necessity of measuring capital goods inflation (inflation in the price of stocks, real estate, and other assets) separately. Indeed a given increase in the supply of money can lead to a rise in inflation (consumption goods inflation) and or to a rise in capital goods price inflation. The growth in money supply has remained fairly constant through since the 1970s however consumption goods price inflation has been reduced because most of the inflation has happened in the capital goods prices

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6.2. Issues in Measuring Inflation Measuring inflation requires finding objective ways of separating out changes in nominal prices from other influences related to real activity. In the simplest possible case, if the price of a 10 oz. can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price change represents inflation. But we are usually more interested in knowing how the overall cost of living changes, and therefore instead of looking at the change in price of one good. We want to know how the price of a large 'basket' of goods and services changes. This is the purpose of looking at a price index, which is a weighted average of many prices. The weights in the Consumer Price Index, for example, represent the fraction of spending that typical consumers spend on each type of goods (using data collected by surveying households). Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods from the present are compared with goods from the past. This includes hedonic adjustments and reweighing as well as using chained measures of inflation. As with many economic numbers, inflation numbers are often seasonally adjusted in order to differentiate expected cyclical cost increases, versus changes in the economy. Inflation numbers are averaged or otherwise subjected to statistical techniques in order to remove statistical noise and volatility of individual prices. Finally, when look at inflation, economic institutions sometimes only look at Inflation 3 Subsets or special indices. One common set is inflation excluding food and energy, which is often called core inflation. Editor DR Noor ul has

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7. Statistical Data of yearly INFLATION Rates of PAKISTAN

Yearly Inflation Rates of Pakistan ( 1990-91 = 100)
Inflation Rates based on Sensitive Price Indicator (SPI), Consumer Price Index (CPI) and Wholesale Price Index (WPI) are

figure.(3) Period 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 SPI 10.54 10.71 11.79 15.01 10.71 12.45 7.35 6.44 1.83 4.84 3.37 3.58 6.83 11.55 7.02 10.82 10.27 22.35 CPI 10.58 9.83 11.27 13.02 10.79 11.80 7.81 5.74 3.58 4.41 3.54 3.10 4.57 9.28 7.92 7.77 13.70 21.44 WPI 9.84 7.36 11.40 16.00 11.10 13.01 6.58 6.35 1.77 6.21 2.08 5.57 7.91 6.75 10.10 6.94 14.09 26.33

Federal bureau of statistics ministry of economic affairs and statistics

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8. INFLATIONARY FACTORS IN PAKISTAN Several supply and demand factors could be responsible for this surge in inflation. 8.1. Supply-side shocks: Can cause large fluctuations in food and oil prices, effects of which on overall inflation, at times, can be so excessive that these cannot be countered through demand management, including monetary policy. 8.2. Increased domestic demand: First, increased domestic demand created an output gap, putting upward pressure on prices. Growth in private consumption on the average remained over 10 per cent between FY04 and FY06, depicting signs of demand side pressures on price level. The relationship between growth and inflation depends on the state of the economy. High growth, without an increase in inflation, is possible if the productive capacity or potential output of the economy is growing enough to keep pace with demand. This is also possible if the actual output is below the potential output and there is sufficient spare capacity available to cope up with the demand pressures. When the actual output catches up with the potential output, there remains no spare capacity and the economy is working at full employment level, any further gain in growth comes at the cost of rising inflation. If demand continues to grow at this stage, and the productive capacity does not expand, there is a serious threat of rapid inflation in the long run without any additional growth in the output. A prolonged phase of rising inflation in such a case can have severe consequences for the economy. 8.3. Increase in net imports: Second, the growing gap between domestic demand and production was filled by a sharp increase in net imports, which grew by above 40 per cent in FY05 and by 24 per cent in FY06. As compared to imports, exports increased by only around 10 per cent in FY05 and by 13 per cent in FY06. This resulted in a record trade deficit. 8.4. Rising trade deficit: The expectations effect is very important since there is a danger that the current high rate of inflation can get locked into expectations of inflation. People expect higher

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salaries to compensate for expected increase in prices, speculation in asset prices increases, credit meant for manufacturing sector diverts to real estate and stock markets, and hoarders, profit and rent seekers become active in expectation of high price in the future. All this can have devastating effect for the prices. 8.5. Fiscal policy remained expansionary: Third, fiscal policy has remained expansionary in the last few years. Expansionary fiscal policy fuels domestic demand and puts pressure on the current account deficit. It widens the investment-saving gap, which has to be financed externally. Financing of fiscal deficit through money creation adds to inflationary pressures. Increased government borrowing from central bank can have serious consequences for general price level.

8.6. Expansionary monetary policy: Fourth, the expansionary monetary policy- high growth in money supply and loose credit policy- was believed to be contributing to high inflation. Although expansion of credit is usual in expanding economies, excessive credit growth can have adverse effects on real variables.

8.7. Rising import prices: Rising import prices are also considered an important factor for inflation. Exchange rate, if depreciating can also put upward pressure on price level. Increase in prices of goods, such as petrol, raw material etc makes our imports costlier, impacting on cost of production.

8.8. Indirect taxes: Similarly, indirect taxes are also blamed as the main cause of inflation. The indirect taxes, such as sales tax and excise duties raise the prices of consumer goods. This creates inflationary pressure. On the other hand, direct taxes reduce the take-home income and have anti-inflationary effect. A substantial increase in support price of wheat is estimated to have an inflationary effect on consumer prices, particularly food

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prices. This effect is due to the fact that wheat and wheat-related products account for 5.1 per cent of the CPI basket.Dr saqib shah

9. IDENTIFYING THE CAUSES OF HIGH INFLATION

Pakistan experienced high economic growth over six per cent during 2004-06. However, prices also started increasing at a rapid pace and the headline inflation remained above eight per cent during the last two years. The average Consumer Price Index (CPI) inflation was 9.3 per cent in 2004-2005 and around eight per cent in 2005-06.

9.1. Is there any need to worry about inflation? When is inflation bad for the economy? A reasonable rate of inflation--around 3- 6 per cent-- is often viewed to have positive effects on the national economy as it encourages investment and production and allows growth in wages. When inflation crosses reasonable limits, it has negative effects. It reduces the value of money, resulting in uncertainty of the value of gains and losses of borrowers, lenders, and buyers and sellers. The increasing uncertainty discourages saving and investment. Not only can high inflation erode the gains from growth, it also makes the poor worse off and widens the gap between the rich and the poor. If much of the inflation comes from increase in food prices, it hurts poor more since over half of family budget of the low wage earners goes for food. Second, it redistributes income from fixed income earners (for instance pensioners) to owners of assets and earners of large and variable income such as profit. 9.2. In case of Pakistan: Annual inflation was above 11 per cent in the 11 of the past 32 years. Not surprisingly, average real per capita income growth was 2.8 per cent in years having less than 11 per cent inflation as compared to the years of high inflation with an average of 1.5 per cent. For Pakistans economy, inflation can be bad if it crosses the threshold of six per cent, and can be extremely harmful if it crosses the double digit level.

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9.3. The question arises as to what were the factors that stimulated the recent inflation in Pakistan? During the first four years of the new millennium inflation remained under five per cent and then suddenly increased to 9.3 per cent in 2004-05 and settled to eight per cent in 2005-06. The growth in wheat prices and exchange rate was low in some years and high in others. However, it seems that excessive money flows towards public and private sector, along with the import price hike in 2003-04 and 2005-06 and wheat price rise in 2003-04 and 2004-05 created inflationary pressure at an alarming level. Taxes as a percentage of manufacturing sectors value-added did not show any rise.

During 2001-04, inflation was very low. Interestingly, support price of wheat was not raised during 2001-03. CPI shot up again in 2004-05 when inflation reached 9.3 per cent. It dropped slightly to eight per cent in 2005-06. Inflation expectations alone explain 45.73 per cent of the inflation in 2005-06 and 31.1 per cent in 2004-05. This critical role of inflation expectations can be explained by emergence of the phenomena like hoarding, assets price hikes, and surge in house rents.

Non-government sector borrowing was the second most important factor. During 2004 and 2005 the growth in non-government sector borrowing has been above 30 per cent, while it was 23 per cent in 2006. This growth is reflected in the contribution of NGSB in inflation, which is 38 percent in 2004-05 and 35 percent in 2005-06. Third important factor is import prices, which explains 26.7 per cent of the inflation in 2005-06 and 13.6 per cent in 2004-05.

In 2004-05, two other important factors for inflation were government sector borrowing and support/procurement price of wheat, contributing 17.6 per cent and 11.8 per cent respectively. The government taxes did not cause any significant rise in prices in 2004-05 and 2005-06. This seems logical since there has been no change in the tax to GDP ratio over the last few years.

There was no further strong pressure on import costs because of a stable exchange

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rate. This policy cannot be sustained for long. Trade deficits are setting the direction. The expansionary monetary policy did contribute in promising GDP growth but it also led to the rise in consumer prices. The phenomenal growth in the flow of loose credit to the private sector played a significant role in disturbing the price mechanism. Availability of money at virtually no cost encouraged speculators and hoarders.

9.4. Pakistan inflation caused by money printing for budget: finance minister June 12, 2008 (LBO) Unprecedented borrowings from the central bank or money printing to finance subsidies have caused inflation in Pakistan to go to a historic high, the country's finance minister has said. Finance minister Naveed Qamar told Pakistan's parliament that large subsidies not financed in the original budget had been given by the government in the past year expanding the fiscal deficit. "As much as 551 billion rupees (up to May 2008) have been borrowed from the central bank, which is unprecedented in the country's history," Qamar said Wednesday. "It is not difficult to imagine what this printing of money means. With more money and no new production, only prices are likely to increase, which is what is happening. "We have to stop this process otherwise the inflation will be running much higher than what it is at present, and as I noted it is already highest in the country's history." Inflation was now at 11 percent a year. In many high inflation Asian countries, from Sri Lanka to Indonesia, political leaders buy popularity by doling out subsidies instead of building infrastructure, which are then financed with central bank credit causing very high inflation. In Sri Lanka inflation is now 'officially' at 26.2 percent, also a historic high. In the past few months the country has suppressed two inflation indices which showed higher levels of inflation. Much of the subsidies in Asia, especially in energy, goes to the richest sections of society, as the rural very poor consume very little energy and have little or no access to subsidized public transport or other utilities which are concentrated in cities. High inflation impoverishes the poor in particular and the population in general, making it difficult for even the employed to come out of the poverty trap. Qamar said the government had spent 407 billion
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rupees on subsidies including 175 billion rupees on petroleum, 133 rupees on electricity, 40 billion rupees on wheat, 48 billion on textiles and fertilizers. Only 114 billion rupees were originally provided in the budget. In a country with a soft-pegged exchange rate - unlike a country with a freely floating exchange rate - central bank finances or money printing drives up domestic demand, creating currency pressure. When the central bank tries to maintain the exchange rate peg, it loses foreign reserves. If the central bank tries to maintain interest rates and the monetary base at the same time the country rapidly dissolves into a classic 'East Asian' style currency crisis. Vietnam is now going through such a crisis, though its central bank is now rapidly pushing up interest rates in a bid to slow the growth of the monetary base. Qamar said Pakistan's foreign reserves fell from 16.5 billion dollars in October 2007 to less than 12.3 billion dollars by end April. The exchange rate has fallen by 6.4 percent from July 2007 to April 2008. Qamar said he hoped to cut subsidies, slash the deficit to 4.7 percent of the economy from 7.0, cap inflation and build up foreign reserves to bring back economic stability. It is rare for Asian politicians to admit in public that inflation is a monetary phenomenon related to central bank activity. The usual practice is to blame 'cost-push' factors which is a symptom rather than a cause of inflation and also 'external' factors. Concepts such as 'inflation targeting' where parliament limits the ability of a government to create inflation to 2 or 3 percent a year are also not widely discussed which contributes to the perpetuation of high inflation. Abdul Aleem Khan, S.Kalim Hyder & Dr Qazi Masood Ahmed 10. INFLATION IN PAKISTAN A CAUSE OF SERIOUS CONCERN Recently government has announced the inflation target of 12 per cent in the federal budget for fiscal year 2009. The governments current year (2007-2008) fiscal target for inflation was 6.5 per cent. While according to government figures, the CPI based inflation stood at 11.11 per cent during July07 to April08. But if we look at these numbers, we see very alarming trends emerging. The food group is important components of CPI based inflation, so if we keep in mind the 12 per cent target of inflation for next fiscal year and assume that full year inflation will reach at around 12 per cent, we can analyze some important prices of essential items for the upcoming year.

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Government has also announced to cut overall subsidies to Rs.295 bn from Rs.407 bn for upcoming fiscal year and the difference will be consumed for development purposes. Table-1 shows some major changes in subsides.

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10.1 Figure. (4) Classification WAPDA KESC Import of Wheat Import of Sugar Ghee Packaged in USC Sales of Pulses USC Sales of Atta Oil Refineries/OMCs/Others (Rs bn) 113 19.5 40 6.5 1.2 0.2 0.2 175 Budget (%) 74 13.8 20 6.3 1.5 0.5 0.5 140 07-08 Budget (%) (34.51) (29.23) (50.00) (3.00) 25.00 150.00 150.00 (20.00) 08-09

From July, 01 the electricity charges will be increased up to 30 per cent while government has announced to cut subsidies on oil products to Rs.140 bn from Rs.175 bn. That will directly hurt the consumer because traditionally, whenever government imposes taxes and cuts down subsidies to industries, all burden goes down to consumers specially the low income group who are directly affected by the price hikes. Also, the increase in GST to 16 per cent from 15 per cent will trigger inflation to rise by more than the targeted rate of 12per cent. As the government has increased subsidies on the sales of flour, ghee and sugar at utility stores and announced some relief packages for common men in next fiscal year budget, it is hoped that it will not take great deal of hard work on government part to remain in the range of loosely targeted rate of 12 percent. The international phenomenon to set the GDP and inflation target is that the target is always set below the GDP target while in this budget; economic managers unpredictably have set the inflation target as 12 per cent well above the GDP target of 5.5 per cent. Taking all these factors into consideration one thing is sure; the upcoming fiscal year will prove tough for common man in terms of inflation. DR M. Shehryar

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11. REMEDIES TO CONTROL INFLATION in Pakistan

11.1. SBP TO FIGHT AGAINST INFLATION (2009-3-9)

(Commerce Ministry has reportedly termed State Bank of Pakistan's (SBP) monetary policy as a failed policy as it is unable to control inflation and to strengthen trade balance, sources told Business Recorder. "During the first nine months of 2008, tight monetary policy could not give its desired results, as the core objective of controlling inflation and narrowing of trade balance was not achieved," sources said, quoting ministry officials. The ministry also took up these issues with Prime Minister Yousaf Raza Gilani in a meeting recently held in the ministry. The ministry has demanded of the government to lower interest rate for making Pakistan's exports competitive in the international market and providing liquidity to exporters, official sources told Business Recorder."We have recommended to the concerned policy makers that for the next quarter an expansionary monetary policy may be adopted i.e. interest may be slashed so that the mechanism of decline of exchange rate could be reversed," they added. The State Bank of Pakistan (SBP) has announced a tight monetary policy, aimed at controlling inflation and trade deficit, which is persistently increasing. SBP had revised the interest rate upward, with the view that this act would attract foreign capital for higher return, which would not only decrease the inflation rate but would also decrease the exchange rate, according to ministry sources. The ministry is of the view that international economic situation has negatively affected the export and import performance of all countries and caused downward trend in international aggregate demand and consequently a significant decrease in imports is observed. These international and national economic factors have adversely affected Pakistan's trade balance. According to the ministry, higher interest rate induces foreign capital inflow, which further appreciates domestic currency and consequently the exportable commodities become expensive in international markets. Furthermore, higher interest rate increases

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export finance rate and makes the capital input more expensive, which increases Pakistan's cost of production and makes it less competitive in international markets. "Our competitors are decreasing their interest rates, which is decreasing their capital input cost and depreciating their currencies. Hence, their export products are becoming more competitive in international markets as compared to Pakistan," sources said. A decline in inflation rate and exchange was recorded, and the balance of trade improved substantially. Despite these figures, this achievement was not primarily due to the monetary policy only. There was a sharp decline in international oil prices as well as that of edible oil, which significantly reduced the balance of trade gap and stabilized domestic prices, sources added. Exports during July-Jan, 2008-09 increased to $10.934 billion from $10.122 billion of July-Jan, 2007-08, registering an increase of $0.812 billion, or 8.0 percent. Slow growth in exports was due to power shortage, rising domestic cost of production, chilling effect on production enhancing costs and retarding exports. The major items showing increase during July-December 2008-09, as compared to the corresponding period of last year, were raw cotton (229.9 percent), rice (109.5 percent), cement (91.6 percent), engineering goods (89.4 percent), petroleum products (27.5 percent), chemicals (24.6 percent), towels (18.7 percent), and cotton cloth (13.0 percent). Major items showing decline during July-Dec, 2008-09, as compared to the corresponding period of last year, were petroleum top naphtha (36.5 percent), carpets (24.5 percent), leather tanned (17.7 percent), cotton yarn (14.7 percent), readymade garments (12.2 percent), leather manufactures (12.1 percent), and bed wear (9.3 percent). Imports during July-January 2008-09 increased to $21.661 billion from $20.480 billion during the corresponding period of last year, registering an increase of 5.8 percent. Growth in imports slowed to 5.8 percent in July-January 2008-09 as compared to 18.9 percent in July-January 2007-08. As a result, trade deficit during July-January 2008-09 grew by only 3.6 percent as compared to 35.5 percent in the corresponding period of last year.
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Increase in imports growth was chiefly attributed to inflated petroleum group imports on the back of high global oil prices, import of wheat in the wake of flour crises, and rise in the import of power generating machinery. The major items contributing to an increase in the import bill were wheat (810.7 percent), power generating machinery (108.8 percent), construction and mining machinery (51.6 percent) petroleum group (38.6 percent), other machinery (25.0 percent), electrical machinery (22.9 percent), iron and steel (12.2 percent), palm oil (7.9 percent), and chemicals (3.9 percent). The major items showing decline in imports during July-December 2008-09 as compared to same period of last year are: aircraft, ships & boats (69.4 percent), telecom (45.1 percent), fertilizer manufactures (31.2 percent) and road motor vehicles (24.8 percent). Tanvir Ahmad Sheikh, President Federation of Pakistan Chambers of Commerce & Industry (FPCCI), says that SBP is preparing monetary policy without studying the nature of inflation. "In Pakistan, inflation is not demand pushed which can be controlled through tight monetary policy. It is the supply side phenomenon. The major causes of rising inflation in Pakistan are increase in the price of oil, wheat and other food items. All these are inelastic products. Monetary policy cannot control their prices. We have to take steps to improve the supply of these goods. And, we have to improve our inventory management." "Rather than reducing inflation, SBP policy measures are generating more inflation," he insists. Most analysts and economists insist that alongside the SBP measures, the government has to adopt a pro-production policy, and work harder on the supply side issues of all products including food and energy. But the question is whether the government will listen? 11.2. SBPS 2ND QUATERLY REPORT The State Bank of Pakistan said that the underlying inflationary pressures have started retreating from second quarter of this fiscal year, but the process is relatively slow. However SBP in 2nd quarterly report released on Saturday maintained that on annualized basis the main inflation was expected to be around 19.5-20.5%. After showing a continuous acceleration since March 2008, the CPI inflation on year-on-

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year basis started easing from November 2008 and reached 21.1% in February 2009 as against a peak of 25.3% in August 2008. The SBP report says that the recent downturn in CPI inflation was mainly due to relative ease in food inflation that has dropped from 34.1% in August 2008 to 22.9% by February 2009. CPI non-food inflation showed a slight decline for the third consecutive month and recorded at 19.6%in February 2009. The downturn adjustment in domestic prices of key 39 fuels in response to a decline in international oil prices is likely to further ease non-food inflation in months ahead, said the report. Moreover a significant decline in metal and other construction and material prices, as a consequence CPI non-food inflation would decelerate sharply. More importantly the pace of decline of food commodity prices is slower than the downtrend in international market, which points towards specific domestic factors or market structure issues. It is notable that part of gains was offset by the depreciation of the rupee during 2008. The SBP0 said that all price indices witnessed a downtrend in recent months. Domestic inflation since 2008 was mainly driven by deceleration in domestic food inflation as exhibited by the food groups of both CPI and WPI. While WPI non-food inflation dropped in tandem with international commodity prices, CPI non-food inflation showed stubbornness. The difference in the trends of two inflation indices is because the pass through of declining global fuel and commodity prices to the wholesale prices has been quicker as compared to the retail prices. This is mainly as the prices of most items included in the WPI basket are based on international prices, said SBP. The impact of decreases in prices of manufacturing inputs such as cotton and metals is fully reflected in the WPI non-food where as CPI non-food group exhibits their partial effects as CPI non-food items also incorporates labor wages which are impacted by second round effects of persistent rise in cost of living. About 40% CPI non-food constitutes of house rent index (HRI) which is being estimated by using 24 month geometric mean, which makes this large component relatively inflexible. The report said that the impact of continued tight monetary posture also yield dividend in terms of a relative ease in core inflation numbers during
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recent months. Core inflation measured by 20% trimmed mean registered below 21% in January and February 2009for the first time since July 2008. It indicates a relative ease in inflationary expectations in the economy. Similarly core inflation measured by non-food non-energy (NFNE) is hovering around 18.8% since October 2008, showing resilience in inflationary pressures. In fact, firmness in the NFNE measure of core inflation has been supported by a continued rising house rent index (HRI) during the recent months. 11.3. INTEREST RATE TO COME DOWN IN JULY-AUGUST

March 14 2009, Advisor to Prime Minister to Finance Shaukat Tarin said on Saturday that the interest rate would come down to single digit in July-August this year and further fall to about 6% on average next year. Current account deficit had come down from $2.1 billion to $500 million, he said. He pointed out that forex reserves were at $10 billion as exchange rate has been stabilized at 80 a dollar compared to 85 a dollar. Tarin said that economic growth would be at 2.5% this year and about 4% next year. Talking about circular debt of Pepco, he said efforts were being made to reduce this and it would be eliminated during the current fiscal year with the help of term finance certificates and bonds for Wapda. Borrowing from State Bank has also been controlled and was Rs206 billion during December 2008 well below the target set for the current fiscal year. Inflation rate was 25% and the government was unable to raise money, and borrowing from SBP had reached Rs 258 billion. Banks were not lending as there were fears that government might freeze bank accounts. Stock exchanges will literally close and trading activity will come to standstill.

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 He said macroeconomic stability would be brought in next 6-12 months in the country. Under medium and long term plan, tax to GDP ratio would be enhanced and productivity of agriculture and manufacturing sectors would be increased. The government would focus on improving skills and investing in human resource development. We need a comprehensive poverty reduction program that would cost about Rs250 billion a year for at least next five years, he said. Pakistan needs to stand on its own feet rather than borrowing from international sources. (Commerce ministry of state bank of Pakistan sources) 11.4. IMF Stabilization Program IMF has proposed replacement of General Sales Tax with a broad based value added tax in Pakistan which can encircle all sectors across the board and generate more revenue. IMF directors agreed that interest rates should be kept on hold for some time to avoid financial pressures and to further consolidate disinflation. This will lead to the strengthening of international reserves.

12. SUMMARY OF ECONOMIC SURVEY (July- April) 2007-08

The inflation rate as measured by the Consumer Price Index (CPI) averaged at 10.3 percent during (July- April) 2007-08, as against 7.9 percent in the same period last year. Food price inflation is estimated at 15.0 percent compared to 10.2 percent in the same period of last year. Non-food inflation increased to 6.8 percent versus 6.2 percent in the comparable period of last year. The core inflation (non-food, nonenergy sector), increased little over last year increasing from 6.0 percent in 2006-07 to 7.5 percent in the first ten months of the current fiscal year. The larger contribution towards the overall CPI inflation comes from food inflation. Based on current trends, it is expected that the average inflation rate during 2007-08 will be over 10.5 percent.

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Major factors contributing to the rise in inflationary pressures in the economy during the current year 2007-08 include the extremely high food and energy prices, which is in fact a global problem. Food inflation was predominantly driven by unprecedented rise in the prices of few items like wheat, rice and edible oil etc, owing to supply short-fall of key consumer items as well as the impact of the significant increase in their global prices. The record high jump in oil prices lead to an increase in the cost of Pakistani imports as well as aggravating food shortages across the world through the conversion of many crops from human consumption to fuel, which have also seriously spurred the world-wide price Level Including those in Pakistan.

Inflation is an important determinant of the macroeconomic stability and thus attracted policy measures to contain it at tolerable level. The corrective measures include pursuing tight monetary policy by SBP to control money supply and credit expansion, easing supply by allowing imports of several essential items to augment domestic supply, gearing reforms toward additional agricultural output and effective participation of the public sector distribution network (USC & TCP).

13. How to improve economic situation in Pakistan? 1: Prospects/Solutions to Improve Economy of Pakistan. How can we overcome these challenges and problems and improve our economy? A lot has been written and talked about, but I will focus on only a few action points.
Change in National Psyche and Mindset.

We as a nation are too much negative oriented and too much cynical where we find everything wrong in this country. Unless we change our mindset and unless everybody who is doing what he is supposed to do, carries out his or her task with sincerity and honesty, we are not going to go anywhere. We should not expect any Messiah to come and fix our problems we have to do it ourselves individually and collectively. There are no short cuts available. Media is muddying the water by their sensational stories and inviting so called experts who contribute in projecting negative
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thinking and negative national psyche. Unless we have a positive can do mentality, it will be difficult to progress. Unless each one of us changes our mind set rather than blame the government and the system, we are not going to go anywhere in this race for global economic survival. This is easier said than done. But I expect our younger generation to be more responsive and responsible.

Building up of Human Capital.

There is no substitute to building up human capital. Private sector, public sector, NGOs, local communities, philanthropists etc, all here to put their hands on deck and participate in making sure that every child goes to school. Every high school graduate has some technical and vocational skill or goes for higher education. Unless we build up human capital, we are just going to be left behind because the world economy is going to be a knowledge based economy. It is not an economy where you memorize material or reproduce that in the exam and forget about it - that is no longer the case. One has to acquire the knowledge and use it in order to apply to problem solving. This is a new paradigm where human capital is as important as machinery and equipment. Pakistan lags behind other countries in the institutions, infrastructure and incentives for human capital formation. We have no choice but to accelerate the pace to catch up with others.

Use of Technology.

The technology is spreading like a wild fire. How many people five years ago could have thought that even in a small towns and villages of Pakistan, one would access to mobile telephones. 95 million Pakistanis have Mobile phones today. You can use this technology in order to provide those banking services, information on climate/weather, agriculture extension, health, education etc. It is a powerful tool which can leapfrog a lot of time which we have wasted. Using technology particularly the information/communication technology for the betterment of social and economic problems of Pakistan is something which needs to be done but it cannot be done the way we have compartmentalized this into different ministries. A more holistic and
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comprehensive approach that deploys technology for poverty reduction has to be put in place.

Young Labor Force.

Pakistan is one of the few countries which has a young labor force which can be harnessed for its own and global economy. Japan, Europe, USA and after 2050 China are going to have aging population where the13ratio of old to young people is going to increase. India and Pakistan are two countries where the ratio of younger people to the older ones is going to increase. If we tool these young men and women properly, we increase the female labor force participation, give those skills and knowledge, they can become the labor force for the rest of the world. This will give a big boost to Pakistans own economy. In 2001, worker remittances were less than a billion dollars; today we have almost 7-8 billion dollars. Now this can be multiplied by three or four times if we have educated labor force i.e. skilled labor force going for overseas employment. This is also a way to create employment opportunities because if you have large number of younger people coming to labor force and you dont have job opportunities for them you can have social upheaval. Therefore, it is imperative to create employment opportunities for them and one of the avenues is to train them in the kind of the skills which are needed not only by the national economy but also by the international economy .e. Governance, Devolution and Decentralization. As the population is increasing, one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore, Peshawar or Quetta. One has to devolve powers, decentralize and delegate authority, provide resources to the local/district governments so that they can take decisions at their own. Those decisions would be very much in accordance with the requirements and the needs of those communities. Sitting in Islamabad one cannot visualize what is needed in Chaghi or Loralai, but the people in Loralai and Chaghi know exactly whether they need water, fertilizers or fruit processing industry. Let us devolve powers to the people at the grassroots level14and there would be much better allocation and utilization of resources. There must, however, be accountability of the local governments by the provincial governments and of provincial governments by the federal government but not
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interference or usurpation of powers. If we do that, then a lot more can happen with same amount of resources which are being wasted today, and the economic growth rate can be raised from 6-7 percent average to 8-9 percent annually. Lecture delivered to the participants of the Command and Staff Course at Command and Staff College Quetta on September 4, 2009.

14. Conclusion:
After the literature review of inflation the research has provided extensive information about inflation. People will become more conscious of it after reading this thesis. The thesis can help to take the better assessment to understand the inflationary situation of Pakistan. We have identified various causes of inflations and find those factors which can certainly provide remedies for inflation in Pakistan. We had also identified a particular type of inflation in Pakistan that is hyper inflation, after analytical study of inflation we have concluded some factors that are the vital indicators for the inflations that can be concluded as in following bullets. Factors:

Excess money printing High production cost International lending/national debts Federal taxes Supply side shocks Increased domestic demand Increased in net imports Rising trade deficit Rising import prices Indirect taxes

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Expansionary monetary policy Fiscal policy remained expansionary

14.1. Remedies:
The research provides the remedies for inflation in Pakistan followed by some suggestions. The State Bank of Pakistan (SBP) should announce a tight monetary policy, aimed at controlling inflation and trade deficit, which is persistently increasing. SBP should revise the interest rate upward, with the view that this act would attract foreign capital for higher return, which would not only decrease the inflation rate but would also decrease the exchange rate. The Government of a country should bring about changes in tax rates; it will help stabilization of prices in the country. For example. A decrease in taxes relates increases disposable income in relation to national income hence, consumption rises at every level of national income. With the increase in aggregate demand for goods, the employment goes up in the country. Monetary policy is a policy that influences the economy through changes in the money supply and available credit. So central bank should adopt a monetary policy.

14.2. The research has identified the various suggestions to improve the current economic situation of Pakistan.

Change in National Psyche and Mindset:

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We as a nation are too much negative oriented and too much cynical where we find everything wrong in this country. Unless we change our mindset and unless everybody who is doing what he is supposed to do, carries out his or her task with sincerity and honesty, we are not going to go anywhere. We should not expect any Messiah to come and fix our problems we have to do it ourselves individually and collectively.

Building up of Human Capital: There is no substitute to building up human capital. Private sector, public sector, NGOs, local communities, philanthropists etc, all here to put their hands on deck and participate in making sure that every child goes to school. Every high school graduate has some technical and vocational skill or goes for higher education. Unless we build up human capital, we are just going to be left behind because the world economy is going to be a knowledge based economy. So we have to build up a human capital.

Young Labor Force: Pakistan is one of the few countries which has a young labor force which can be harnessed for its own and global economy. Japan, Europe, USA and after 2050 China are going to have aging population where the13ratio of old to young people is going to increase. India and Pakistan are two countries where the ratio of younger people to the older ones is going to increase. So we should tool these young men and women properly, we should increase the female labor force participation, give those skills and knowledge, so they can become the labor force for the rest of the world. This will give a big boost to Pakistans own economy.

15. RECOMMENDATIONS: After a literature review we sought out some important points from research which can be beneficial to control inflation in Pakistan. Therefore we have been able to make some suggestions. The suggestions are as follows. We should reduce our Government Luxury Expenses both Federal and Provincial.
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We should reassess the complete system of Direct and Indirect Taxes. We should increase the Production of Food, Industry and Service things to control inflation. We Should charge Capital Gain tax to Burger and Theft Families and persons We should Reduce Unemployment. We should Increase Agriculture, industries. SBP should take major steps to control inflation Pakistan should become self reliant We should bring new technology that can be able to control on production with less cost. Pakistan must stop black marketing.

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