Determinants of Recent Inflation in Pakistan: Revisit

Abstract

This paper explores the short and long run dynamics of inflation in Pakistan using Johansen Co-integration Technique covering data from 1972-73 to 2012-13. Consumer Price Index (CPI), Exchange Rate (ER), Government Borrowing (GB), Non Government Borrowing (NGB), Real GNP (RGNP), Indirect Taxes (IT), Growth Rate of Money Supply (GMS), Import Price Index (IPI), Real Demand relative to Real Supply (RD/RS) and Wheat Support Price (WSP) Money Supply (MS) are taken as indicators. The result shows a long run relationship among the selected variables. It is found that the ER is the most significant factor of inflation in 2011-12, GB, IT, GMS, IPI, RD/RS. It represents the output gap consist of fiscal policy inflation is highly significant.