Inflation is defined as a persistent rise in the general price level of goods and services in an economy over a period of time. When inflation occurs, each unit of currency can purchase fewer goods and services as prices rise. This represents a decline in the real value of money. Inflation indicators like the Consumer Price Index (CPI) and Wholesale Price Index (WPI) are used to measure inflation by tracking the price changes of fixed baskets of consumer and wholesale goods. Main causes of inflation in Pakistan include loose monetary policies, depreciation of the Pakistani rupee, demand for non-development expenditures, and frequent price adjustments in administered goods like fuel and electricity. The State Bank of Pakistan uses monetary policy tools

1. •Fahad Iqbal

2.  The persistent rise in the prices of goods
and services in an economy in a specific
period of time.
 When the general price level rises, each
unit of the functional currency buys fewer
goods and services. Decline in the real
value of money.
 Once prices have increased, they rarely go
back, even if the taxes are later reduced

3.  An inflationary indicator that measures the change in
the cost of a fixed basket of products and services
 Including housing, electricity, food, and transportation. it
is also called cost-of-living index.
 Designed for those items which are mostly consumable in
daily life on the primary and secondary level these prices are
collected from whole sale markets as well as from mills at
organized wholesale market level
 It covers the whole sale price of 106 commodities
prevailing in 18 major cities of Pakistan

4.  The weekly change of price of 53 selected
items of daily use consumed by those house
holds whose monthly income in the base year
2000-01 ranged from Rs 3000 to above Rs12000
per month
 Informs about the actual position of supply
whether the commodity is available in market or
not

5.  Main reason of inflation is expectation.
 Demand for non-development expenditures:
 Decelerating Economic growth
 Construction of houses
 Increase in wages
 Loose monetary policies
 Depreciating Pak Rupee

6.  Frequent adjustments in the administered prices
of Gas, electricity, POL (Petroleum, Oil and
Lubricants) products
 Political instability
 Population explosion
 Black money
 Consumption habits
 Sick industrial unit

7. Period SPI CPI WPI
2001-02 3.37% 3.54% 2.08%
2002-03 3.58% 3.10% 5.57%
2003-04 6.83% 4.57% 7.91%
2004-05 11.55% 9.28% 6.75%
2005-06 7.02% 7.92% 10.10%
2006-07 10.82% 7.77% 6.94%
2007- 08 11.03% 8.01% 10.26%

8.  Setting of interest rates
 Through Open market operations
 Through the setting of banking reserve requirements
 Monetary policy has to be forward looking

9.  Taxation
 Government expenditure
 Encourage imports by lowering duties
 Banning the export of essential items (pulses,
cereals, and oils to support the domestic
consumption)