Inflation is defined as a continuous increase in general price levels over time. It can be caused by increases in money supply, government spending, exports, wage rates, and raw material prices. Governments use monetary and fiscal policies like tightening money supply and reducing spending to control inflation. In Pakistan, inflation rates for CPI, WPI, and SPI are measured and these indices track price levels of consumer, wholesale, and essential items respectively. The government monitors various inflation metrics to gauge economic conditions and formulate appropriate policies.

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2. Inflation is a situation where there is a continuous
increase in general price level over time
Increase in money supply
Increase in govt. expenditure
Increase in exports
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3. The basic cause is the rising of costs of production such as
Increase in wage rate
Increase in the prices of raw materials
Adaptation of tight monetary policy
Contractionary fiscal policy
Direct govt. control
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4. The inflation in Pakistan has depicted downward
rigidity. All prices indexes like CPI,WPI and SPI
witnessed a clear trend in recent months. The CPI
inflation for Fy09 is around19.1% in march. Core
inflation is 18.5%.
Food inflation 19.7% and non food inflation 18.5%.
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5.  Annual inflation
 Year on year inflation
 Month on month inflation
 Monthly year on year inflation
 Quarterly inflation
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6. Consumer Price Index (CPI) is the main measure
of price changes at the retail level. It measures
changes in the cost of buying a representative
fixed basket of goods and services and
generally indicates inflation rate in the country.
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7. The CPI series cover 35 urban centers of Pakistan. Depending
upon the size of the city, 1 to 13 markets have been selected from
where the prices are obtained. The markets have been chosen
keeping in view the volume of sales, assuming that majority of the
category of employees for CPI make the purchases from these
markets. Thus, the prices represent the actual consumer prices.
The number of markets covered in 35 cities is 71.
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8. S. No. Name of City Name of Market S. No. Name of City Name of Market
1 Lahore 07 19 Karachi 13
2 Faisalabad 02 20 Hyderabad 04
3 Rawalpindi 06 21 Sukkur 02
4 Multan 03 22 Nawabshah 01
5 Gujranwala 01 23 Larkana 01
6 Sialkot 01 24 Mirpurkhas 01
7 Sargodha 01 25 Shahdadpur 01
8 Islamabad 04 26 Kunri 01
9 Jhang 01 27 Peshawar 03
10 Bahawalpur 01 28 Mardan 01
11 Bahawalnagar 01 29 Abbotabad 01
12 Okara 01 30 D.I Khan 01
13 Jhelum 01 31 Bannu 01
14 D.G Khan 01 32 Quetta 02
15 Mianwali 01 33 Khuzdar 01
16 Attock 01 34 Turbat 01
17 Samundri 01 35 Loralai 01
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18 Vehari 01 Total Markets 71

9. As the consumption pattern of individuals depends on their income
level and occupation, the population under observation is therefore,
categorized under various income groups and occupational
categories. This serves to a certain the impact of price changes of
various commodities on their purchasing ability. The income groups
and occupational categories covered in the CPI are given below as
base year 2000-2001
1. Up to Rs. 3000/-
2. Rs. 3001/ to Rs. 5000/-
3. Rs. 5001/ to Rs. 12000/-
4. Above Rs. 12000/-
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10. The current CPI covers 374 items in the basket of goods and
services, which represent the taste, habits and customs of the
people. This basket has been developed in the light of results
generated through the Family Budget Survey conducted by the
FBS in 2000-01. The basket of goods and services comprises on
10 major groups (2000-2001 base).
Number of item
S.No.Group Weights
2000-2001
1 Food & Beverages 124 40.34
2 Apparel, Textile & Footwear 42 6.10
3 House Rent 1 23.43
4 Fuel and Lighting 15 7.29
5 Household, Furniture & Equipments 44 3.29
6 Transport & Communication 43 7.32
7 Recreation & Entertainment 16 0.83
8 Education 24 3.45
9 Cleaning, Laundry & Personal Appearance 36 5.88
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10 Medicare 29 2.07
Total 374 100.00

11. FBS staff located in 35 Regional/Field offices collects price data
regularly on monthly basis. They personally visit shops, stores, and
establishments according to a predetermined time schedule and
collect the prices of the selected items. Prices are reported in
schedules developed for this purpose. The contents of the
schedules include name of the city, item, its specification and unit
price quoted by four different shopkeepers. The time schedule for
collection of prices is given below:-
Name of Schedule Frequency data Date of collection
Part-I
Monthly 11-14 of each month
Food & beverages
Part-II
Apparel, Textile, and Monthly 1-3 of each month
Footwear, Fuel & Lighting
Part-III
Household, Furniture &
Monthly 4-6 of each month
Equipment etc. and Transport
& Communication
Part-IV
Recreation, Entertainment &
Education Cleaning, Laundry Monthly 7-10 of each month
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& Personal Appearance &
Medicare

12. Laspeyre's formula as given below is being used for the computation
of CPI.
Σ (Pn/Po) x wi
ln = x 100
Σ wi
Where ln = CPI for the nth period
Pn = price of an item in the nth period
Po = price of an item in the base period
wi = weight of the ith item in the base period
= Po x qo / Σ PoxQo
Σwi = Total weight of all items.
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13. The computation of CPI can be illustrated with the help of an
example. Suppose we want to calculate index of pulses for the
month of February, 2002. The same is computed as under:-
Price Weight Weighted Price
Base Price Price relative
Item Unit Feb.02 relative
Po (Pn/P0)
Pn W (Pn/P0) x W
Moong Pulse Kg. 29.91 51.23 0.2230 1.7128 0.3820
Mash Pulse Kg. 45.01 69.81 0.2017 1.5510 0.3128
Masoor Pulse Kg. 36.23 54.00 0.2214 1.4905 0.3300
Gram Pulse Kg. 28.99 40.87 0.4272 1.4098 1.6023
Total 1.0733 1.6270
As per formula
Σ (Pn/Po) x wi x 100
ln =
Σwi
= 1.6270 x 100 = 151.59
1.0733
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14. The Sensitive Price Indicator (SPI) is computed on weekly basis to
assess the price movements of essential commodities at short
intervals so as to review the price situation in the country.
The SPI is being computed for the employees belonging to 4 income
groups and all income groups combined as in CPI (with base 2000-
2001).
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15. S. No.Item S. No.Item S. No.Item S. No.Item
1 Wheat 15 Milk fresh 29 Tea packet 43 Electric bulb (60-wts)
2 Wheat flour 16 Milk powdered (Nido) 30 Tea (prepared) 44 Match box
3 Rice basmati (broken) 17 Curd 31 Cooked beef (plate) 45 Washing soap
4 Rice irri-6 18 Vegetable ghee (tin) 32 Cooked dal (plate) 46 Bath soap (Lifebuoy)
5 Masoor pulse 19 Vegetable ghee (loose) 33 Cigarettes K-2 47 Chicken farm
6 Moong pulse 20 Mustard oil 34 Latha (coarse) 48 Gas Charges
7 Mash pulse 21 Cooking oil (Dalda) 35 Lawn 49 L.P.G.
8 Gram pulse 22 Potatoes 36 Voil 50 Electric Charges
9 Beef with bone 23 Onions 37 Shirting 51 Petrol
10 Mutton 24 Tomatoes 38 Sandal gents (Bata) 52 Diesel
11 Eggs 25 Bananas 39 Sandal ladies (Bata) 53 Telephone Charges (Local)
Chappal sponge
12 Bread plain 26 Salt 40
(Bata)
13 Sugar 27 Red chillies 41 Kerosene oil
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14 Gur 28 Garlic 42 Firewood

16. SPI is based on the prices prevailing in 17 major cities for the base year
2000-2001. The number of markets covered in each city is given below:
S. No. NAME OF CITY No. OF MARKET
1 Islamabad 4
2 Rawalpindi 6
3 Gujranwala 1
4 Sialkot 1
5 Lahore 7
6 Faisalabad 2
7 Sargodha 1
8 Multan 3
9 Bahawalpur 1
10 Karachi 13
11 Hyderabad 4
12 Sukkur 2
13 Larkana 1
14 Peshawar 3
15 Bannu 1
16 Quetta 2
17 Khuzdar 1
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Total 53

17. Computation of weights of SPI are the same as that of the CPI . In
the base 2000-2001, fresh developed weights through Family Budget
Survey conducted in 2000-2001 are being used. The weights for
each groups are combined by taking simple average of weights of 17
cities for each item. Then, all income groups are combined at
Pakistan level taking simple average of weights of 4 income group.
Prices used in SPI relate to Thursday of each week. The field staff
collects retail prices of 51 consumer items by personally contacting
the shopkeeper of the markets covered in the SPI. Prices are
obtained by the headquarters on telephone/fax from the concerned
Field/Regional Offices on the same day.
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18. The Wholesale Price Index (WPI) is designed to measure the
directional movements of prices for a set of selected items in the
primary and wholesale markets. Items covered in the series are
those which could be precisely defined and are offered in lots by
producers/manufacturers.
The wholesale prices are collected from the single market by the price collecting
staff of FBS located at the following 18 cities
S. No. Cities S. No. Cities
1 Karachi 10 Sargodha
2 Lahore 11 Quetta
3 Faisalabad 12 Sukkur
4 Rawalpindi 13 Bahawalpur
5 Hyderabad 14 Sahiwal
6 Multan 15 Nawabshah
7 Gujranwala 16 Larkana
8 Peshawar -NOSSCIRE- 17 Mirpurkhas
9 Sialkot 18 Mingora

19. The WPI covers 425 items in the base 2000-2001. The items have
been divided into five groups. The groups and number of items are
given below
Items Weight
S. No. Commodity Group
2000-01 2000-01
1 Food 106 42.12
2 Raw Materials 25 7.99
3 Fuel, Lighting & Lubricants 17 19.29
4 Manufactures 227 25.87
5 Building Material 50 4.73
Total 425 100.00
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20. Frequency Of Data Collection
The wholesale prices are collected by the Statistical Assistant of
Regional/Field offices from 13th to 15th of each month.
Calculation Of Average Prices At Market/City Level
For each commodity 4 quotations from different shops of a market are
obtained. Average of these 4 quotations is taken as a representative
price for the commodities in the market/city.
Methodology Of Data Collection
The method of data collection is the same as explained in CPI.
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22. GDP deflator is a measure of the price level, calculated
as the ratio of nominal GDP to real GDP times 100.
GDP Deflator = Nominal GDP × 100
Real GDP
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23. Quantity of 1st commodity × price per unit
+
Quantity of 2nd commodity × price per unit
Quantity of 1st commodity × base year price per unit
+
Quantity of 2nd commodity × base year price per unit
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24. Inflation is a key indicator of a country and provides
important insight on the state of the economy. A stable
inflation not only gives a nurturing environment for
economic growth, but also uplifts the poor and fixed
income citizens who are the most vulnerable in society.
So Govt. should take initiatives to tackle high inflation
rate for stable economic growth.
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