Inflation is the gradual rise in the average costs of goods and services over a given period. Or, there is a decline in the value of money as a medium of exchange. Pakistan has been suffering from a hard inflation time for many years because of many factors. But this year, Pakistan’s Inflation has risen up to 33%.
They can impact badly on the country’s economic growth. An increase in the printing of money, a decline in the availability of products and services, and a rise in consumer demand are the reasons for Inflation. They record a CPI of a specific record of time to measure Inflation. Inflation can have both beneficial and negative effects on an economy.
These effects can be opposites of one another. This can be accomplished in several ways: encouraging people to make monetary transactions and raising consumer demand and business investment. The main cause of the country suffering from Inflation is the rapid growth of the money supply. This often results from the government’s need to finance the budget deficits.
Moreover, shortages of food, electricity, gas, etc., are also significant factors of Inflation. Because of Inflation, the whole country is suffering from bad days. The purchasing of the Pakistani rupee has decreased, and the prices of goods have increased. This is the cause of the standard of living for many houses. In addition, it has resulted in increased interest rates, making it more challenging for private individuals and commercial enterprises to obtain loans. In this blog post, we discuss the Reasons of inflation in Pakistan.
6 Reasons of Inflation in Pakistan
Here are the 6 main reasons for Inflation in Pakistan.
1. Increase in Money Supply
The circulation of money within an economy is called a money supply. The increased demand for goods and services that results from an increase in the money supply might lead to a subsequent rise in product and service costs. To cover the budget shortage, the Pakistani government has been printing extra money, which has increased the amount available. The growth of the money supply is a significant contributor to Inflation in the economy.
2. Shortage of Goods & Services
The main reason for Inflation is the lack of goods. Pakistan is a country that is dependent on imports for necessities such as food, gas, and oil. The shortage of goods can increase the price of these commodities.
Moreover, a shortage of power supply is also a primary cause of Inflation. The decrease in output due to a lack of energy leads to a scarcity of goods and services and higher pricing.
3. Increase in Production Costs
The increase in production cost increases the prices of goods and services. In Pakistan, the production cost has been rising for various reasons, including a need for more investments in the country’s infrastructure and electricity.
4. Currency Devaluation
The devaluation of Pakistani rupees plays a vital role in country inflation. When the currency falls, the imported items will automatically increase. Pakistan’s high reliance on imports means that the country’s currency decline has significantly impacted Inflation.
5. High Government Borrowing:
When the government borrows heavily from the central bank, it can increase the money supply, which can contribute to Inflation. This is because the increased demand for goods and services resulting from government spending can pressure prices.
6. Political Instability:
Political instability and uncertainty can discourage investment and economic growth, leading to higher prices for goods and services.
How Inflation Affect the Real Estate Market
Inflation can significantly impact the real estate market of any country, including Pakistan. Inflation is a sustained increase in the general price level of goods and services over time. Inflation can lead to a rise in the cost of construction materials, labor, and other expenses related to real estate development, which can cause property prices to rise.
In addition to the increase in construction cost, Inflation can also lead to a decrease in purchasing power, which can impact demand for real estate. As people’s disposable income decreases due to Inflation, they may be less likely to invest in real estate or purchase property. This can lead to reduced property prices and a slowdown in the real estate market.
Moreover, Inflation can also impact the financing options available to potential buyers. If interest rates increase due to Inflation, it can become more expensive for people to take out loans to purchase the property. This can reduce demand for real estate, leading to a decrease in property prices. Overall, Inflation can have a complex and significant impact on the real estate market in Pakistan, as it can impact both the supply and demand sides.
Can the government control inflation?
Yes, the government can control inflation by implementing policies related to fiscal deficit, monetary policy, and taxation.
How does global oil prices affect inflation in Pakistan?
The rise in global oil prices increases the cost of transportation, manufacturing, and other related industries, contributing to inflation.
What is the impact of inflation on the poor?
Inflation reduces the purchasing power of the poor.
Inflation in Pakistan is caused due to several reasons, shortage of food, increase in money supply, political instability, etc. Pakistan is suffering from very bad days, but if the government takes a good decision, Pakistan will recover from this loss quickly. The above article describes the reasons for Inflation in detail. I hope you loved this article. Stay tuned with us for more!