MONETARY AND STRUCTURAL SOURCES OF INFLATION IN PAKISTAN

Abstract

The issue regarding sources of illtlatioll is a very burning one in Pakistan, because of its affecting the economy through disturbance of the growth variables. Below we discuss the background of this problem. During 1970s, inflation in Pakistan averaged around 12.3 %, due primarily to high growth rate of overall deficits during this period. During, the 1980s, the inflation rate averaged around 7.3 % which is lower than the 1970s. From a low level of 3.44% in 1986-87, intlation jumped to 8.4 % in 1988-89 and reached about 9.5% in 1992-93. In the beginning of the 1980s, the inflation rate was low but it rose steadily in subsequent years to 12.66% in 1990-91. The money supply growth rates during 1970s and 1980s were 19.6% and 12. % respectively. Moreover, the import price index increased sharply from 3.5 % in 1986-87 to 24.3 % in 1992-93. The growth rate of commodity producing sector slowed down somewhat, specially due to unusual bad performance of the large scale manufacturing sector.