An Essay On Inflation In Pakistan

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
― John Maynard Keynes, The Economic Consequences of the Peace



As far as administeredprices are concerned the government increased the procurement priceof wheat, gram, rice, sugarcane, e.t.c. This year in the range of 10% to40% to give impetus to the production of these crops. Actual quantitiesof these crops will come into the market with the time lag of at least 6months. Prices, however, increased soon after the governmentsannouncement. Distortionary public policy towards agriculture sector inthe past has put us into the situation that, Pakistan, an agriculturalcountry, is bound to import wheat, milk, cooking oil, pulses, meat e.t.cto the tune of $2.0 billion annually. Solution of half of trade deficitproblem of the country hinges in self-sufficiency in agriculturalproduction. Similarly, the index of fuel, lighting and lubricants in CPI,which comprises electricity gas and POL products increased 19% duringthe year from end June, 96 to May, 97 and 98.59% from 1990-91 toMay 1997 which caused rise in cost of production and transportationcost. One reason for rise in the prices of POL products in the country isprice-hike of POL in the international market determined by demandand supply forces. The other one is the frequent devaluation of domestic currency which is controllable by better economicmanagement in the country. Almost every increase in administeredprices adds more and more grieves, miseries and hardships to theconsumer life.Increases in theworld price of imports in the world market and a 40%devaluation/depreciation in the Pakistani rupee from January 1991 toJune 1997 fuelled inflation to unmanageable levels. Without removingthe causes of devaluation , we are lowering the value of our currency tomake our commodities competitive. As devaluation fuel inflation, it

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