All about inflation

Inflation affects different sectors of the economy. When inflation crosses reasonable limits, it has negative effects. The increasing uncertainty discourages saving and investment. Not only can high inflation erode the gains from growth, it also makes the poor worse off and widens the gap between the rich and the poor. If much of the inflation comes from increase in food prices, it hurts the poor more since over half of the family budget of low wage earners goes into food. Second, it redistributes income from fixed income earners (for instance, pensioners) to owners of assets and earners of large and variable income, such as profits.

For Pakistan’s economy, inflation can be bad if it crosses the threshold of six percent, and can be extremely harmful if it crosses the double-digit level. Several supply and demand factors could be responsible for this surge in inflation.

Alma Zehra

Karachi