Inflation is the Achilles heel of this govt.

Can it be controlled?

Before we delve into the details, it is imperative that we are aware of the prevalent economic structure of the state of Pakistan. This isn’t the erstwhile USSR where price was determined by state.

In a capitalist system, market based upon supply/demand determines rate. In sum, fed govt doesn’t determine price unlike what most of us like to believe!

Proceeding ahead, price stability is primarily the job of central bank which is independent of govt.

In our particular context, SBP has 3 policy tools to control inflation

1. Exchange rate: It can artificially appreciate the rupee like it was done in last govt, but you guys are aware of the consequences.

2. Policy rate: Hike in interest rate to curtail money flow.

3. Printing of money: SBP doesn’t print any rupee since greater the money in circulation, the higher the inflation

On the other hand, Fed govt can influence prices in 2 ways.

1. Federal expenditure: Adopt austerity to mitigate demand. This policy action will have adverse

consequences for growth, though.

2. Taxation: Lowering taxation rate but that can again provide to impetus growth resulting in inflation

3. Administration / Regulation: To prevent market monopoly and collusion especially with regards to essential items.

The sum and substance of this thread is that inflation will correspond to market factors and macroeconomic fundamentals. There is no shortcut. The last time we had a balance of payment crisis, it took quite some time for inflation to subside as the appended graph illustrates