Impact of Economic Growth and Employment Rate on Inflation
ABSTRACT
This research paper presents empirically analysis of the impact of GDP growth rate and employment rate on inflation. For this purpose data from 1995 to 2008 has been collected and analyzed through OLS technique. The result of the model shows that GDP growth rate and employment rate adequately affect inflation. With the increase in GDP and employment, inflation decreases.
INTRODUCTION
Inflation is a burning issue in Pakistan. It is generally felt that for several years Pakistan has had a double-digit inflation. The public sector has used a mix of policies to control inflation, and it is also held responsible for its creation. The consumer price index (CPI) increased over 11 percent in 1981-82, and over 12 percent in 1990-91.
Similarly, sensitive price index (SPI) increased over 15 percent in 1981-82, and over 12 percent in 1990-91. The GDP deflator was also double-digit for several years. Inflation not only affects sectoral allocation and distribution of income but also generates poverty.
Several supply side and demand side factors could be responsible for this surge in inflation.
Inflation can be a result of shocks to the supply of certain food items and to world oil markets. Rising oil prices can pose risk of increase in prices of almost all other commodities of the consumer basket. Such supply-side shocks are very volatile and can cause large fluctuations in food and oil prices. The effects of this on overall inflation at times can be so excessive that these cannot be countered through demand management, including monetary policy. However, greater emphasis in the recent debate on inflation remained on the demand side factors.
The demand side pressures were often considered as an outcome of the September 11, 2001 incident in the United States of America (USA) and a combination of expansionary monetary and fiscal policies. First, increased domestic demand due to remittances from abroad and liberal demand-management policies outpaced the
This research paper presents empirically analysis of the impact of GDP growth rate and employment rate on inflation. For this purpose data from 1995 to 2008 has been collected and analyzed through OLS technique. The result of the model shows that GDP growth rate and employment rate adequately affect inflation. With the increase in GDP and employment, inflation decreases.
INTRODUCTION
Inflation is a burning issue in Pakistan. It is generally felt that for several years Pakistan has had a double-digit inflation. The public sector has used a mix of policies to control inflation, and it is also held responsible for its creation. The consumer price index (CPI) increased over 11 percent in 1981-82, and over 12 percent in 1990-91.
Similarly, sensitive price index (SPI) increased over 15 percent in 1981-82, and over 12 percent in 1990-91. The GDP deflator was also double-digit for several years. Inflation not only affects sectoral allocation and distribution of income but also generates poverty.
Several supply side and demand side factors could be responsible for this surge in inflation.
Inflation can be a result of shocks to the supply of certain food items and to world oil markets. Rising oil prices can pose risk of increase in prices of almost all other commodities of the consumer basket. Such supply-side shocks are very volatile and can cause large fluctuations in food and oil prices. The effects of this on overall inflation at times can be so excessive that these cannot be countered through demand management, including monetary policy. However, greater emphasis in the recent debate on inflation remained on the demand side factors.
The demand side pressures were often considered as an outcome of the September 11, 2001 incident in the United States of America (USA) and a combination of expansionary monetary and fiscal policies. First, increased domestic demand due to remittances from abroad and liberal demand-management policies outpaced the
References: Mubarik, Y. A. (2005), “Economic Survey of Pakistan”, SBP Research Bulletin, vol. 1(1), pg 37-38 Qayyum, A. (2009, March), “Inflation Expectation Survey”, Pakistan Institute of Development Econimics, vol. 1(1) Khan, A. H. (2009, June 30th), “Imperatives of Growth” The News