INFLATION-MinistryofFinance.pdfVIP

Chapter 07 INFLATION 7.1 Introduction growth as well as macroeconomic stability. Both Inflation is a key indicator of a country and empirical and theoretical studies demonstrate that provides important insight on the state of the there is a strong link between inflation and output economy and the sound macroeconomic policies (unemployment). Very high levels of inflation as that govern it. A stable inflation not only gives a well as very low levels of inflation are equally nurturing environment for economic growth, but damaging for an economy. Both extremes arrest also uplifts the poor and fixed income citizens who growth prospects, impose economic suffering on are the most vulnerable in society. Over the last the population, cause inefficient allocation of decade, with a few exceptions, inflation around the resources, inexplicably hurt the poor and fixed world had been at a retreat. However, with buoyant income groups, create uncertainty throughout the global growth, along with higher population economy and undermine macroeconomic policies. growth, rapid industrialization and urbanization in emerging markets, and strong per capita income High inflation always burdens the poor and fixed- growth, inflation has started veering its ugly head income groups more than the rich since they are in many parts of the world, including Pakistan. In not able to protect themselves against the costs the midst of soaring demand for essential attached to inflation, nor able to hedge against the commodities, food inflation has emerged as the risks that inflation brings with it. In contrast, low main contributor to recent global inflationary or falling inflation can also have a negative impact pressures. on growth through several different factors. For