Inflation
Definition
The rate at which the general level of prices for goods and services rises over time, causing the purchasing power of money to fall.
Simple Explanation
Inflation means your money buys less over time. If a roti cost Rs 10 last year and Rs 12 today, that specific item inflated by 20%. When this happens across most goods and services simultaneously, it's called inflation. A little inflation (2–4%) is considered healthy in most economies. Very high inflation (above 20–30%) is damaging — it erodes savings and makes planning impossible.
In Pakistan
Pakistan measures inflation through the CPI (monthly, from PBS) and the SPI (weekly, 51 food items). Pakistan experienced extreme inflation in 2022–2023: CPI hit 38.0% in May 2023 — the highest since the 1970s — driven by energy price hikes under the IMF program, rupee depreciation, and 2022 flood damage to crops. The SBP raised its policy rate to 22% to combat this. By late 2024, CPI fell back to single digits.
Example
In FY2023, Pakistan's annual CPI averaged around 29%, meaning a basket of goods that cost PKR 100 at the start of FY2022 cost PKR 129 by the end of FY2023 on average.
Frequently Asked Questions
Is inflation always bad?
No. Moderate inflation (2–5%) is generally healthy — it encourages spending rather than hoarding, gives central banks room to cut rates during recessions, and prevents the deflationary spirals seen in Japan's 'lost decades.' The problem is *high* inflation (above 10–15%), which erodes savings, creates uncertainty, and falls hardest on the poorest.
What causes high inflation in Pakistan specifically?
Pakistan's inflation is driven by a combination of: (1) energy price adjustments (electricity/gas tariffs often kept artificially low then corrected sharply); (2) rupee depreciation — Pakistan imports energy, food inputs, and raw materials priced in USD; (3) food supply shocks (floods, droughts, crop failures); (4) historically, fiscal deficit monetisation — the government borrowing from the SBP, which creates money. The IMF's 2022 program targeted all four.