Causes and Consequences of High Inflation growth rate of the GDP by 1 percentage point has the effect on the rate of inflation of minus 0.31 percentage point. A rise in import prices(in$) or higher depreciation of the rupee by 1 percentage point increases the rate of inflation by 0.17 percentage point, and so on. The impacts over the medium term are larger. Table 11.4 gives the magnitude of different factors contributing to inflation from 2016-17 to 2022-23, July to November. Two conclusions emerge from the numbers. First, impact of higher import prices is more visible after 2019-20 along with a higher rate of depreciation from 2018-19 onwards of the exchange rate. Second, the role of administered prices also becomes more visible from 2020-21 onwards. These are the factors which have contributed more to the upsurge in the rate of inflation from 2019-20 onwards. Table 11.4: Magnitude of Determinants of the Rate of Inflation* Growth Rate Rate of Rate of Rate of of Monetary Growth Increase in Rate of Increase in Year Inflation Supply Rate of $ Import Depreciation of Administered (lagged by GDP Prices Exchange Rate Price one year) 2016-17 4.2 13.7 4.6-1.8 0.4 2.1 2017-18 3.9 13.7 6.1 0.7 4.5 4.9 2018-19 7.3 9.7 9.1-11.7 18.1 22.8 2019-20 10.7 11.3-0.9-20.3 22.3 1.2 2020-21 8.9 17.5 5.7 4.7 1.3 23.0 2021-22 12.2 16.2 6.0 24.8 13.0 16.5 2022-23 25.1 13.6-1.0* 43.8 33.9 33.8 (July-Dec) *Estimated|**Measured as rate of inflation lagged by one year Sources: SBP. PBS. PES Rate of Change in Inflationary Expectations** 2.9 4.2 3.9 7.3 10.7 8.9 12.2 Table 11.5 gives the magnitude of the contribution of different factors to inflation in Pakistan during the period of high and rising inflation from 2019-20 to 2022-23(first half). The largest contribution is from inflationary expectations at 42.5 percent, followed by rise in import prices of 19.3 percent and by depreciation of the rupee by 19 percent. The peak rate of inflation is in the first five months of 2022-23. This is attributable in a way to‘imported’ inflation to the extent of as much as 53 percent in the form of higher international prices of commodities imported by Pakistan and to a large devaluation of the rupee. In addition, the near 12 percent impact of higher administered prices is also due largely to rise in imported fuel prices and higher petroleum levy. Therefore, as long as international commodity prices remain high the likelihood is low that the rate of inflation will come down substantially in Pakistan. 111