Monetary Squeeze High Inflationary Expectations Persist
Despite Monetary Squeeze High Inflationary Expectations Persist
A recently conducted survey by the PIDE on inflation expectations reveals that
people are expecting high inflation together with high unemployment, a decline in growth
rate and decreasing currency value. The survey also shows that both demand pull and cost
push factors are responsible for current inflation in Pakistan, the most prominent being global
economic conditions and high food and fuel prices. High cost of living induced by inflation is
now the most important problem in Pakistan. The most hurt are the lower income segments
of the society followed by the middle income group. The survey reveals that the current
monetary policy has not been effective in curbing inflation, highlighting the need for
coordinated monetary and fiscal policies to control inflation.
The respondents indicated a 20% expected rate of inflation for the months of March
and April 2009. Also, the respondents expect that for the coming six months inflation will
remain on average at 21% and the expectation for the next year is even higher.
An overwhelming majority of the respondents (71%) expect that the rate of
unemployment will increase in the next six months and this situation is likely to persist in the
next year. Nearly two-third of the respondents expect that the rate of growth will drop in the
next six months.
Some 44% of the respondents expect the exchange rate to depreciate during the next
six months whereas 35 percent of the respondents say that there will be no change in the
exchange rate. Interestingly, a majority of the respondents (81%) believe that the political
scenario affects inflation expectations. In addition, international inflation, foreign aid and
financial development are also believed to affect inflationary expectations. The current
inflationary pressure in Pakistan, in their opinion, is due to global financial crisis (39%),
followed by food prices (34.9%) and oil prices (31.0%).
About two-thirds of the respondents view that monetary policy is ineffective in
controlling the rate of inflation in Pakistan. A large majority of the respondents (86%)
believe that coordinated move by the authorities implementing monetary and the fiscal
policies will help to control the current spell of inflation in Pakistan.
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“The greatest discovery of all time is that a person can change his future by merely changing his attitude.”
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