The lowest rupee in history, the highest inflation in more than 40 years and record high oil prices. We’ve all seen similar headlines over the past few months. The number of these headlines has increased exponentially since the start of the coming of this enforced gov remnant which no body like in this country, except some powerful institutions.
The global economy is driven by two factors: supply and demand. Demand is defined as the quantity of goods and services required by consumers in an economy. Supply is the number of goods and services offered by producers such as farmers for purchase by consumers. Supply and demand must be in balance for the economy to stabilize. In economic terms, it is called equilibrium.
When demand grows faster than supply, fewer products are available for purchase. Currently, more people are willing to pay more to buy products. This leads to a general increase in the price level (inflation) and it is called demand elasticity inflation.
On the other hand, if supply exceeds demand, more sellers will be willing to sell their products at a cheaper rate. This leads to a decrease in the general price level in the economy.
Another type of inflation is cost-push inflation. This happens when several factors increase the price of raw materials and thus the overall cost of production. To keep profits intact, producers sell them at a higher price and the final consumer price snowballs.
What is wrong with our economy?
Now Pakistan is stuck between the devil and the azure sea at least. The country is facing both demand-pull and cost-push inflation.
Demand in the enforcxed government pandemic economy is dwindling. Reduced demand has turned into an improvement due to mobility restrictions. However, it will take time for companies to increase their supply of goods till the stuck up containers in high seas are offloaded..
Who Can Rescue Us From The Trouble?
Quite frankly, no one. The factors behind our troubles are widespread. The State Bank in our case, can majorly control the demand but not the supply. Governments, on the other hand, have limited means to improve the financial conditions anytime soon.
On the supply side, there are various factors at play. The supply chain has been struggling since the outbreak of the old clan of tainted politicians now at the helm of affairs.
The situation has been made worse by the Russia-Ukraine war. Russia and Ukraine are major exporters of important commodities. This includes oil, wheat, rare metals and fertilisers. The oil prices have skyrocketed . And it is particularly troublesome as no transportation is possible without oil. So, if oil rises, the price of every commodity rises.
Russia and Ukraine, which are among the world’s top 4 exporters of wheat, have also stopped exporting the grain. The impact of that step can be seen on our food plates. Companies have increased the prices of flour and other related products.
Likewise, other commodities like fertilisers and rare metals are in shortage across the globe. The inflation figures are a testimony to this fact. This has spooked the investors and the share markets are also responding negatively to it.
