Leading Issues in the Economy of Pakistan: Agenda for Reforms Table 11.2: Rate of Inflation in South Asian Countries Average Annual Rate of Inflation(%) Countries 1990 to 2000 2000 to 2010 2010 to 2020 Long-term Rate of Inflation Bangladesh 5.1 6.2 5.9 5.9 India 8.6 6.1 6.0 6.9 Nepal 8.6 5.8 6.8 7.1 Pakistan 8.8 8.3 6.9 8.0 Sri Lanka 9.2 10.1 5.0 8.1 Source: WDI • Sri Lanka and Pakistan have generally had higher rates of inflation 11.2 Causes of Inflation There is a dire need for identification of the factors which have contributed to the relatively high rate of inflation in Pakistan in recent years and months. This has been achieved by econometric analysis of time series data from 1990-91 to 2021-22 of the impact of different factors like monetary expansion, GDP growth, import prices in$, exchange rate depreciation, hike in administered energy and fuel prices and inflationary expectations. The resulting estimates of impact on the rate of inflation are presented in Table 11.3. Table 11.3: Factors Contributing to the Rate of Inflation For one percentage point increase in • Rate of Expansion in Money Supply 1 • Growth Rate of Real GDP • Rate of Increase in Import Prices(in$) • Rate of Depreciation of Exchange Rate 2 • Rate of Increase in Administered Prices 3 • Rate of Change in Inflationary Expectations 4 1 Lagged by One Year Impact in% Points on Rate of Inflation 0.171 -0.305 0.172 0.172 0.089 0.569 3 Prices of transport, electricity, and gas for domestic consumers 4 Rate of Inflation lagged by one year The resulting estimates are very revealing. A one percentage point in the rate of monetary expansion has the impact of raising the rate of inflation by 0.17 percentage point. A faster 110