TRENDS AND CAUSES OF INFLATION: REFLECTIONS FROM PAKISTAN

The purpose of this study is to explore the practicability of inflation on monitory policy. This paper focuses on to identify the determinants of current inflation in Pakistan. This study answers the questions that “What is the impact of inflation on economy?”, “What are the key determinants of current inflation in Pakistan?”, “Trends of inflation in past years?” and “What are the causes of inflation?” The findings of this paper supports that the most important determinants of inflation, i.e. rise in the price of imported goods, loan to private sector and adaptive expectations. Role of fiscal policy is negligible. The core idea is that when high expectations for inflation in future and a growing trade deficit is being there whether it is likely for economy to come out of this price twisting. This study is helpful for government decision makers for controlling inflation and on the other hand, it is equally important for the business sector to account for the inflation premium while making investment.