LAHORE: No rapid development is possible without some inflation. However, it must be moderate otherwise it will be hard to get positive fruits from it, said experts.
A moderate inflation acts as an incentive for producers to increase output as goods become expensive because of inflation and increase revenue and profit.
Moderate inflation helps to promote full employment, economic growth and stable financial markets. Inflation enables labour and product markets to function more smoothly, said Najid Ahmed, an economic expert. He said there is positive relation between inflation and economic growth of Pakistan as inflation encourages productivity and output level. A producer produces more when he is given more reward of his output with high profit and in this way country's GDP also increases. Here is an important policy for policy makers that they should increase output by increasing productivity and this increased productivity will reduce the prices of goods and services.
Muhammad Afzal, another economist, said one percent increase in inflation will raise GDP by 0.45%. It encourages productivity and output level. Policy makers should make such type of policies that increase output by improving productivity. It will reduce the prices of goods and services, he added.
According to him, inflation like investment and employment is an important macro variable which is of much concern to policy makers and politicians. Money supply, imports, exchange rate and budget deficit were found to be the major causes of inflation in Pakistan.
Another expert Dilawar Khan said increase in GDP leads to a reduction in inflation. To combat inflation, unwarranted growth of money supply is kept under control and the exchange is stabilized. He said it is less likely that imports are reduced to alleviate inflation due to economy needs.
According to him, human resource development coupled with investment and value-added by both agriculture and industry contribute significantly to economic growth. Should the policy makers attach genuine attention to these factors, it is expected that Pakistan economy will perform reasonably well.
It may be noted that the government had deferred power and gas tariff hike back in March 2020 till the end of fiscal year, which had provided some respite to rising inflation in near-term. Also, the Monetary Policy Committee had eased the policy rate to 11% in early March to address a crisis like situation quite well keeping in view of projected decline in inflation.
There was a general expectation that CPI would remain at 9.5% till Jun-20 and there would be no need of further emergency cut as real inflation was hovering -0.85% at that time. But economic halts prolonged, which lead to stagflation.
According to World Bank, the annual inflation rate rose to 9 percent in September of 2020 from 8.2 percent in the previous month. Main upward pressure came from prices of food & non-alcoholic beverages. It may be noted that a latest survey conducted by Gallup Pakistan revealed that 47 percent Pakistanis think Prime Minister Imran Khan has destroyed the country's economy, endorsing a recent survey of France-based organization Ipsos which stated that 4 in 5 Pakistanis foresee the economy further deteriorating.
Copyright Business Recorder, 2020
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