Price Spiral Essay

At present Pakistan is faced with a bost of problems of varying urgency and the problem of soaring prices is one of the most important problems that our motherland is confronted with. The problem is two-fold to check the rising prices and, if possible, to bring the prices down. The prices are sky rocketing. Since June 1966, when the Government devalued the rupee, the prices have more than doubled. The price situation is womening. It is now the major national problem-it has eclipsed all other issues before the country.

The problem, on the face of it, may seem to be quite simple. But in fact it is not. It is closely related to the welfare of the people. It owes much to the administrative efficiency of the Government. At last one not the least important is the fact that the success of a Government depends largely on the behavior of prices in that country. This problem of rising prices has wide ramifications. It is the result of the operation of a large number of causes.

The present shortage and bottlenecks are mainly the result of a development programme based on ad hocism and drift. While concentrating on food production, the Government appears to have overlooked the obvious fact that in years of agricultural prosperity, demand for cloth, edible oils, vegetables, fish, meat and milk, etc., is bound to increase. These are precisely the food items, which have been showing a maximum price increase.

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Another cause for the rapid price rise is the phenomenal increase in production. This has further accentuated inflation. The production of goods is expanding slowly. The current consumption of goods is increasing because of population growth, rising in their price rise.

The repercussions of inflation are serious. During inflation there takes place a widening of profit gad because the demand is in excess of the supply. The scarcity of goods provides an opportunity for all sorts of evil practices to thrive. The chances of profit are fast increasing and there is a great market for goods. Therefore, there takes place stock-piling of goods or what is popularly shown as ‘hoarding’. Hoarding further accelerate the pace of prices. The home cost of goods increases. The foreign buyers, therefore, will not be attracted to buy such goods. The result is that the foreign market is lost and much foreign exchange is lost. The value of rupee falls.

Also in the period of rising prices, the rich get richer and the poor poorer. The rich own the means of production. They. pay the laborers bounteously but they take with the left hand what they give with the right. The cost of goods swell up,’ the prices naturally do. There exists a wide gap between wholesale and retail prices. The laborer now pays in the market more than he did before. What his master gives him, the market takes. The money naturally goes in the hands of profit earners, businessmen, merchants and manufacturers. The result, therefore, is that there does not take place any equitable distribution of national wealth and the main objectives of the socialistic pattern of society is defeated.

The two-pronged attack has to be launched in order to hold and bring down the price line. The short-term measures such as fair price shops, rationing of provision, distributing the shortage in an egalitarian manner, seizing hoards, etc., will help the Government to check the present situation from deterioration. The long-term measures, such a drafting a small plan, increasing bank rate, taxation, government borrowing will help the government to withdraw the huge amount of money pumped into circulation during the last few years. They will help also time lag inevitable. list created between the supply of money and supply of goods.

The real answer to inflation lies in greater production had productivity. Industrial production can be appreciably raised with existing installed capacity, if bottlenecks such as raw material shortages, undue licensing restrictions against efficient large-scale producers, and unreasonable labor demands are removed The Government task should be not only to ensure a proper materials balance for industry but also to adopt a fairminded policy to bring about the much-needed climate of industrial peace and harmony.

In a developing economy, prices are bound to rise and there can be no absolute price stability. But limits should be defined. A general view is that a modest annual increase in prices is not unhealthy for a developing economy. But there cannot be a general yardstick of the so-called safe limit. Price increase must be matched by an increase in the national income in real terms.

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