One of the economic problem threatening the peoples of the world is inflation. Inflation ordinarily mans constant rise in cost of Money. When prices of commodities and services rise due to increase in demand, inflation rises its ugly head. Poor and salaried people are hit hard. Inflation rises its ugly head when either the prices or the supply of money continue to rise simultaneously. The main causes of inflation are:
- Increase in demand
- No corresponding increase in the output of goods and services.
The demand may rise due to various economic factors such as
- Increase in supply of money
- increase in disposable income
- increase in salaries, wages or D.A.
- increase in population.
All these factors are operating in Pakistan. People are more consumption minded. The main reason behind second cause are:
- deficiency of capital supply
- natural calamities like famine, floods etc.
- fall in industrial output
- scarcity in factors of production.
Inflation and unemployment exit side by side in under-developed countries like Pakistan Inflation began in the early seventies. It was due to fall in investment due to the nationalization. The necessary rise in salaries and wages further added to inflation pressure. The steep rise in food prices resulted in the general cost of living In spite of the efforts of changing governments in the country, and their empty promises to reduce inflation, it has been growing year after year. At present, it is 10%. The thoughtless Budget 1994-95, has caused a further rise in the prices of goods and the cost of living of the common man.
Inflation is an economic evil and curse for the society. It has caused uncurable social and moral damages. Society as a whole is a loser. Social values have been eroded along with the value of the currency. It has diminished people’s trust in the government. The information necessary for wise decision making is also muddled. Unchecked growth in population has worsened the problem.
Inflation has also undermined morality. There is no business ethics in the country. In a stable economy, members of the society live within the system’s moral limits. The case in an inflationary society is otherwise. People lose faith in saving. They lose faith in honesty; become doubtful about long term growth. They come to believe in windfall. The worker becomes skeptic. There is no unity of interest.
Growing social and political evils like bribery, hoarding, tax evasion, smuggling, profiteering and political chaos become rampant due to selfish interests and moral apathy. There is no sanctity of law in such or society. People believe in the saying. Make hay while the sun shines.
Pakistan is not safe from these evils. Growth in population, deficit financing, unwise monetary expansion, trade imbalances, increase debt serving and spiraling import bills, etc. have made the position worst. It is beyond recovery. Rate of inflation can be worked out by finding the difference between growth rate of currency and the growth rate in GNP (Gross National Product) at constant factor cost.
As there is no simple cause for inflation, there is no simple cure. It is a curse from Above. The best remedy is to curb consumption, form habit of saving both at private and public levels, and increase investment.