Research on Inflation Rate (1)

8/3/2019 Research on Inflation Rate (1)

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CHAPTER ONE

INTRODUCTION

The present chapter would introduce the problem understudy.

A. BACKGROUND

Since large the economic conditions are unstable in Pakistan. There are various factors

influencing economic growth. Inflation remains one of the important indicator .It is a key

indicator of a countrys economic condition and provides insight on the state of economic system

and the macroeconomic policies that govern it. The inflation rate in Pakistan (I.R.P) during last

decade was,

year 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010

I.R.P 5.2 4 3.9 2.9 9.1 7.9 7.6 20.3 13.6 13.4

Source: CIA World Fact book

Razaq (2011) stated that in Pakistan, inflation in the Pakistan has been increasing gradually. The

projected inflation rate in Pakistan would be 16 percent for 2011 and 13 percent for 2012. The14.1 percent inflation rate of Pakistan has already been projected by IMF. IMF stated on

November 15, 2010, that the average inflation rate of 14 percent, and real GDP growth of 23/4

percent during July-April 2010-11.Tthe CPI inflation of Pakistan increased by 14.08 percent over

the same period of last year on the back of sharp increase in the prices of food items fuelled by

higher petroleum prices and electricity tariff. All different sectors of economic system are inter

linked with every other which implies if anysector is affected then all other sectors will also face

the after effects. As a result, due to inflation these days the price hike is at its peak as the

common commodity cost is increased to almost 90%. While the middle class fixed salary

individuals have been drawing same salaries which results in very reduced buying power of

majority of Pakistani citizens(www.tradingeconomics.com).

Inflation can mean either an increase in the money supply or an increase in price levels.

Generally, when we hear about inflation, we are hearing about a rise in prices compared to some

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benchmark. If the money supply has been increased, this will usually manifest itself in higher

price levels - it is simply a matter of time. For the sake of this discussion, we will consider

inflation as measured by the core Consumer price index(CPI), which is the standard

measurement of inflation used in the U.S. financial markets. Core CPI excludes food and energy

from its formulas because these goods show more price volatility than the remainder of the CPI

(www.investopedia.com).

Akhtar (2006) stated that Inflation is one of these core problems. Government claims that in

order to keep the prices of essential commodities under control, it has been taking various

measures throughout the year. These measures include: a liberal import regime for food items

including zero rating of the imports of these commodities. In order to provide relief to the low

and fixed income groups, the government has been selling wheat flour and sugar through the

outlets of the Utility Stores Corporation (USC) at much lower prices than the market. In order to

augment supplies of essential commodities in shortest possible time and at lower freight charges,

the government has also allowed the import of various items through land routes from

neighboring countries. But, all these are secondary measures. Problems like inflation and

poverty etc cant be resolved by applying the secondarymeasures directly, these need strategic

planning. Unfortunately, in Pakistan, these core problems have never undergone such planning

process. Government has never invited foreign investment for the production of basic goods.

Agriculture sector, on which the major industries rely for the raw material has not been given

sufficient subsidies. Trading Corporation of Pakistan (TCP) should plan the process by which we

can have the maximum production at lower cost at home, instead of formulating plans to import

the items. Domestic productions at less cost of production will not only make the availability of

goods much easier but Aggregate Supply will also increase, and domestic industry will get

developed. As a result, due to inflation these days the value hike is at its peak as the common

commodity cost is increased to almost 90%. While the middle class fixed salary individuals have

exact same old salaries which results in very reduced buying power of majority of Pakistani

citizens.

B.PURPOSE

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GENERAL PURPOSE

The general purpose of the study was to study the impact of the high inflation rate on the

purchasing power of middle income group of North Nazimabad Town, Karachi.

SPECIFIC PURPOSEThe study specifically targets the following areas:

To study the living style and standard of the middle income group.

To analyze the factors which increases the inflation rate?

To study the impact of high inflation rate on purchasing power of the middle income

group . To study the factors responsible for low saving.

C.RESEARCH QUEATIONES

The following are the research questions:

How the high inflation rate effects on the living style and standards of the middle income

group?

Which factors increases the inflation rate?

How the inflation rate impact on purchasing power of the middle income group?

Which factors responsible to low saving?

D.JUSTIFICATION

The study is expected to yield the following benefits:

It helps in advancement of knowledge.

It helps to provide the guidelines to the authorities concerned.

It will be helpful for other researchers in the filed.

Ways are identified to reduce the inflation rate.

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E.SCOPE

The study was limited to all the middle income group population of North Nazimabad Town,

Karachi.

F.DEFINITION OF THE KEY TERMS

IMPACT: Strong effect, influencing strongly (www.dictionary.com).

INFLATION RATE: The percentage increase in the price of goods and services of usually

annually (www.dictionary.com).

MIDDLE GROUP: The socioeconomic class between the working class and upper class, usually

including professional, highly skilled laborers and lower and middle management

(www.dictionary.com).

G.BASIC ASSUMPTION

Most of the population of North Nazimabad Town is comprised of middle class citizens.

Majority of the citizen are salaried class individuals.

The people mostly purchase the grocery on monthly basis.

CHAPTER TWO

REVIEW OF THE RELATED LITERATURE

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Previous chapter introduced the problem. This chapter would describe the

literature review with full details.

A.IMPORTANCE

The inflation rate is one of the most important economic forces consistently weighing

on the value of a nation's currency. Inflation means a sustained rise in prices. Inflation can be

Creeping, walking or trotting, running, hyper or gallop, demand pull, cost push, mixed, markup

or stagflation according to velocity and nature. Inflation is caused by some demand side factors

(Increase in nominal money supply, Increase in disposable income, Expansion of Credit, Deficit

Financing Policy, Black money spending, Repayment of Public Debts, Expansion of the Private

Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of

production or inputs, Industrial Disputes, Natural Calamities, Artificial Scarcities, Increase in

exports (excess exports), Global factors, Neglecting the production of consumer goods,

Application of law of diminishing returns).

Akhtar (2006) stated that Inflation affects the different sectors of the economy like

Effects on the distribution of income and wealth.

Effects on production, Effects on the Government.

Effects on the Balance of Payment.

Effects on Monetary Policy.

Effects on Social Sector.

Effects on Political environment.

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Effect on different classes of the people (Debtors & Creditors, Salaried Class, Wages

earners, fixed income group, Investors and shareholders, Businessmen, Agriculturists).

Inflation can be controlled by Monetary Measures (Credit Control, Demonetization of the

currency, Issue of new currency), Fiscal Measures (Curtailment in unnecessary

expenditures, Increase in rate of taxes, Increase in volume of savings, Anti inflationary

budgetary policy, Increasing public debt policy) and Non-Monetary and Non Fiscal

Measures (Increase in volume of production, Price control and rationing policy).

Inflation is one of the core problems. Government claims that in order to keep the prices

of essential commodities under control, it has been taking various measures throughout

the year. These measures include: a liberal import regime for food items including zero

rating of the imports of these commodities. In order to provide relief to the low and fixed

income groups, the government has been selling wheat flour and sugar through the

outlets of the Utility Stores Corporation (USC) at much lower prices than the market. In

order to augment supplies of essential commodities in shortest possible time and at

lower freight charges, the government has also allowed the import of various items

through land routes from neighboring countries. But, all these are secondary measures.

Problems like inflation and poverty etc cant be resolved by applying the secondary

measures directly, these need strategic planning. Unfortunately, in Pakistan, these core

problems have never undergone such planning process. Government has never invited

foreign investment for the production of basic goods. Agriculture sector, on which the

major industries rely for the raw material has not been given sufficient subsidies.

Trading Corporation of Pakistan (TCP) should plan the process by which we can have

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the maximum production at lower cost at home, instead of formulating plans to import

the items. Domestic productions at less cost of production willnot only make the

availability of goods much easier but Aggregate Supply will also increase, and domestic

industry will get developed. As a result, due to inflation these days the value hike is at its

peak as the common commodity cost is increased to almost 90%. While the middle

class fixed salary individuals have exact same old salaries which results in very reduced

buying power of majority of Pakistani citizens (AKHTAR, October, 29, 2006).

In mainstream economics, the word inflation refers to a general rise in prices

measured against a standard level of purchasing power. Previously the term was used

to refer to an increase in the money supply, which is now referred to as expansionary

monetary policy or monetary inflation. Inflation is measured by comparing two sets of

goods at two points intime, and computing the increase in cost not reflected by an

increase in quality. Inflation is a key indicator of a country and provides important insight

on the state of the economy and the sound macroeconomic policies that govern it.

A stable inflation not only gives a nurturing environment for economic growth, but also

uplifts the poor and fixed income citizens who are the most vulnerable in society.

Inflation is the rise in the prices of goods and services in an economy over a period of

time. When the general price level rises, each unit of the functional currency buys fewer

goods and services; consequently, inflation is a decline in the real value of money a

loss of purchasing power in the internal medium of exchange, which is also the

monetary unit of account in an economy(Wikipedia).

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B.DEFINITION S

In mainstream economics, the word inflation refers to a general rise in prices

measured against a standard level of purchasing power. Previously the term was used

to refer to an increase in the money supply, which is now referred to as expansionary

monetary policy or monetary inflation. Inflation is measured by comparing two sets of

goods at two points in time, and computing the increase in cost not reflected by an

increase in quality.

The rate at which the general level of prices for goods and services is rising, and,

subsequently, purchasing power is falling. Central banks attempt to stop severe inflation,

along with severe deflation, in an attempt to keep the excessive growth of

prices to a minimum(www.investopedia.com).

A persistent increase in the level of consumer prices or a persistent

decline in the purchasing power of money, caused by an increase in available currency

and credit beyond the proportion of available goods and services (Webster,2000).

The overall general upward price movement of goods and services in an economy,

usually as measured by the Consumer Price Index and the Producer Price Index;

opposite of deflation (www.investorwords.com).

Inflation is when the prices of most goods and services continue to creep upward. It is

measured by the Consumer Price Index (CPI)(www.about.com).

C.TYPES

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The various types of inflation are listed below:

1. DEMAND PULL INFLATION: Wage inflation is also called as demand-pull or

excess demand inflation. This type of inflation occurs when total demand for goods

and services in an economy exceeds the supply of the same. When the supply is

less, the prices of these goods and services would rise, leading to a situation called

as demand-pull inflation. This type of inflation affects the market economy adversely

during the wartime.

2. COST PUSH INFLATION: There is increase in the cost of production of goods

and services, there is likely to be a forceful increase in the prices of finished goods

and services.For instance, a rise in the wages of laborers would raise the unit costs of

production and this would lead to rise in prices for the related end product. This type of

inflation may or may not occur in conjunction with demand-pull inflation.

3. PRICING POWER INFLATION:Pricing power inflation is more often called as

administered price inflation. This type of inflation occurs when the business houses and

industries decide to increase the price of their respective goods and services to increase

their profit margins. A point noteworthy is pricing power inflation does not occur

at the time of financial crises and economic depression, or when there is a downturn in

the economy. This type of inflation is also called as oligopolistic inflation because

oligopolies have the power of pricing their goods and services.

4. SECTORAL INFLATION:This is the fourth major type of inflation. The sectoral

inflation takes place when there is an increase in the price of the goods and services

produced by a certain sector of industries. For instance, an increase in the cost of crude

oil would directly affect all the other sectors, which are directly related to the oil industry.

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Thus, the ever-increasing price of fuel has become an important issue related to the

economy all over the world. Take the example of aviation industry. When the price of oil

increases, the ticket fares would also go up. This would lead to a widespread inflation

throughout the economy, even though it had originated in one basic sector. If this

situation occurs when there is a recession in the economy, there would be layoffs and it

would adversely affect the work force and the economy in turn (www. buzzle.com).

D.EFFECTS

Below the list of the effect of high inflation rate:

I. Hoarding (people will try to get rid of cash before it is devalued, by hoarding food

and other commodities creating shortages of the hoarded objects).

II. Distortion of relative prices (usually the prices of goods go higher, especially the

prices of commodities).

III. Increased risk - Higher uncertainties (uncertainties in business always exist, but

with inflation risks are very high, because of the instability of prices).

IV. Existing creditors will be hurt (because the value of the money they will receive

from their borrowers later will be lower than the money they gave before).

V. Fixed income recipients will be hurt (because while inflation increases, their

income doesnt increase, and therefore their income will have less value over

time).

VI. Lowers national saving (when there is a high inflation, saving money would mean

watching your cash decrease in value day after day, so people tend to spend the

cash on something else).

VII.Illusions of making profits (companies will think they were making profits while in

reality theyre losing money if they dont take into consideration the inflation rate

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when calculating profits).

VIII.Causes an increase in tax bracket (people will be taxed a higher percentage if their

income increases following an inflation increase).

IX. Causes mal-investment (in inflation times, the data given about an investment is

often deceptive and unreliable, therefore causing losses in investments

X. Causes business cycles (many companies will have to go out of business because

of the losses they incurred from inflation and its effects).

XI. Currency debasement (which lowers the value of a currency, and sometimes

cause a new currency to be born).

XII.Rising prices of imports (if the currency is debased, then its purchasing power in

the international market is lower)(www.crisistimes.com/inflation).

E.HOW TO MEASURE INFLATION R ATE?

1. CONSUMER PRICE INDEX (CPI): Consumer Price Index (CPI) is the main measure of

price changes at the retail level. It measures changes in the cost of buying a representative fixed

basket of goods and servicesand generally indicates inflation rate in the country. The Consumer

price index was computed for the first time with 1948-49 as a base for industrial workers in the

cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to

make CPI more representatives by improving and expanding its scope and coverage in terms of

items, category of employees, cities and markets. Accordingly, the CPI series were computed

with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. At present, the CPI is

being computed with 2000-01 as base year. And according to the studies of CPI, the inflation

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rate during the fiscal year 2000-2001 was 4.41, 3.54 in 2001-2002 , 3.10 in 2002-2003, 4.57 in

2003-2004, 9.28 in 2004-2005 and 7.92 in 2005-2006, 7.77 in 2006-2007, 8.01 in 2007-2008,

24.43 in 2008-2009 and 2010 CPI is 20.77.

2. SENSITIVE PRICE INDEX (SPI): The Sensitive Price Indicator (SPI) is computed on

weekly basis to assess the price movements of essential commodities at short intervals so as to

review the price situation in the country. The SPI is being presented in the Economic

Coordination Committee of the Cabinet (ECC). Sensitive price indicator was originally

computed with 1969-70 as base which was subsequently switched over to 1975-76, 1980-81

and 1990-91 as base year. Presently, the SPI is being computed with base 2000-2001. And

Sensitive Price Indicator (SPI) shows the facts as; 4.84 in 2000-2001, 3.37 in 2001-2002, 3.58 in

2002-2003, 6.83 in 2003-2004, 11.55 in 2004-2005 and 7.02 in 2005-2006 , 10.82 in 2006-2007

,11.03 in 2007-2008 and 2008-2009 SPI is 30.96.

3. WHOLESALE PRICE INDEX (WPI): The Wholesale Price Index (WPI) is designed to

measure the directional movements of prices for a set of selected items in the primary and

wholesale markets. Items covered in the series are those which could be precisely defined and

are offered in lots by producers/manufacturers. Prices used are generally those, which conform to

the primary sellers realization at ex-mandi, ex-factory or at an organized Wholesale level.

The WPI initially was computed with 1959-60 as base. Since then, continuous efforts

have been made to make the WPI more representatives by improving and expending its

scope and coverage in terms of commodities, quotations/markets, etc. Accordingly, WPI

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series were computed with 1969-70, 1975-76,1980-81 and 1990-91 as base years.

Presently, the WPI is being computed with 2000-01 as base. The Wholesale Price Index

(WPI) tells the story as; 6.21 in 2000-2001, 2.08 in 2001-2002, 5.57 in 2002-2003, 7.91

in 2003-2004, 6.75 in 2004-2005 and 10.10 in 2005-2006 6.94 in 2006-2007, 10.26 in

2007-2008 and 2008-2009 WPI is 27.98.

CHAPTER THREE

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METHODOLOGY

The previous chapters introduced the problem of the study and reviewed the relevant

literature. This chapter will set forth the methodology of the study.

A. STRATEGY

The strategy of research was survey.

B .POPULATION AND SAMPLING

The population of the study was comprised of all citizens of North Nazimabad Town,

Karachi. All the secondary data related to economic growth of Pakistan. It was about annual

reports, economic surveys of Pakistan & budget documents. The content related to inflation rate

specially with respect to our topic and data available at Federal Bureau of Statistics and some

other relevant sources was also studied .The population was large and diverse .Therefore

stratified random sampling design was adopted. The overall sample size of 32 citizens belonging

to North Nazimabad Town were selected as a part of sample the principle of stratification was

gender and age.

B. RESEARCH INSTRUMENTS

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A questionnaire comprising of 20 items was designed. The items were drawn from related

literature and in consultation with research supervisor. This procedure ensured the content

validity of this questionnaire.

C. DATA COLLECTION

The data were collected through personal visits .the reliability of the instrument was ensured

through pilot testing.

D. PLAN OF DATA ANALYSIS

Two types of analytical techniques were used. First, quantitative which involved descriptive

statistical procedures. Tables with percentage were used for description of data. The second type

of technique used was qualitative analysis of the facts was made ant the results were described in

the narrative.

CHAPTER FOUR

ANALYSIS OF THE FINDINGS

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In the previous chapters the problem of the study was stated, the review of the literature

was presented, and the methodology of the study was outlined. The present chapter will describe

the data analysis produces in details.

The findings of the study will be presented in two sections.

Section I: Composition of the Sample (percentages and graphs)

Section II: Testing of the Major Hypotheses

Section I: COMPOSITION OF THE SAMPLE

Table 4.1.1 shows the distribution of sample by gender

TABLE 4.1.1

distribution of the sample by gender

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Gender Frequency (f) Percentage (%)

Male 18 56.25

Female 14 43.75

Total 32 100

It is cleared that 56.25% of the respondents were male and 43.75% female.

PIE CHART

It is cleared from the pie chart that major share of the sample was comprised of male citizens.

Table 4.1.2 shows the distribution of sample by marital status

TABLE 4.1.2

distribution of sample by marital status

Marital Status Frequency (f) Percentage (%)

Married 20 62.5

Unmarried 12 37.5

Total 32 100

It is cleared that 62.5% of the respondents were married and 37.5% were unmarried.

STACKED COLUMN

It is cleared from the graph that major share of the sample was comprised of married citizen.

Table 4.1.3 shows the distribution of sample by age

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TABLE 4.1.3

distribution of sample by age

Age Frequency (f) Percentage (%)

Below 25 years 08 25

25 years and above 24 75

Total 32 100

It is cleared that 75% of the respondents were 25 years and above and 25% were below 25 years.

STACKED CYLINDER

It is cleared from the graph that major share of the sample was comprised of 25 years and above

age.

Table 4.1.4 shows the distribution of sample by income

TABLE 4.1.4

distribution of sample by income

Income Frequency (f) Percentage (%)

Below 10000 07 21.875

10000 and above 25 78.125

Total 32 100

It is cleared that 78.125% of the respondents were income 10000 and above and 21.875% were

below 10000 income.

DOUGHNUT

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It is cleared from the doughnut chart that major share of the sample was comprised of

10000 and above income.

Section II: TESTING OF THE MAJOR HYPOTHESES

Null Hypothesi s 1

There will be no significant difference in the impact of the high inflation rate on the purchasing

powder of male and female citizens of North Nazimabad Town, Karachi.

Analysis of the Problem

Table 4.2.1 shows the application of Mean (X)for testing the null hypothesis 1. In the sample

of 32 respondents, 18 were male and 14 were female. So, N1 =18 for male and N2 =14 for

female.

S.NO. MALE FEMALE

1 72 59

2 74 70

3 62 72

4 71 70

5 69 54

6 66 68

7 68 66

8 70 72

9 72 59

10 69 52

11 55 69

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12 65 75

13 59 66

14 68 85

15 68

16 75

17 53

18 69

X 1205 937

Mean (X) =X

N

66.94 66.93

Referring to Table 4.2.1, we find that the Mean (X) = 66.94of male is approximately equal to the

Mean (X) = 66.93of female. Therefore, the null hypothesis is accepted and it is concluded that

there is no significant difference in the impact of the high inflation rate on the purchasing powder

of male and female citizens of North Nazimabad Town, Karachi.

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Null Hypothesi s 2

There will be no significant difference in the impact of the high inflation rate on the purchasing

powder of married and unmarried citizens North Nazimabad Town, Karachi.


Table 4.2.2 shows the application of Mean (X)for testing the null hypothesis 2. In the sample of

32 respondents, 20 were married and 12were unmarried. So, N1 = 20 for married and N2 =12 for

unmarried .

S.NO. MARRIED UNMARRIED

1 72 56

2 56 54

3 59 72

4 66 69

5 78 59

6 64 66

7 78 72

8 84 63

9 63 60

10 69 58

11 72 49

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12 75 66

13 69

14 54

15 58

16 66

17 69

18 70

19 75

20 70

X 1367 744

Mean (X) = X

N

68.35 62

Referring to Table 4.2.2, we find that the Mean (X) = 68.35 of married is higher than the Mean

(X) = 62of unmarried. Therefore, the null hypothesis is rejected and it is concluded that there

is significant difference impact of the high inflation rate on the purchasing powder of married

and unmarried citizens of North Nazimabad Town, Karachi.

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Null Hypothesi s 3

There will be no significant difference in the impact of the high inflation rate on the standard of

living of low income and high income citizens of North Nazimabad Town, Karachi.


Table 4.2.3 shows the application ofMean (X) for testing the null hypothesis 3. In the sample of

32 respondents, 07 were below 10000 and 25 were 10000 and above income. So, N 1 = 07 for

below 10000 and N1 = 25 for more 10000 income.

S.NO BELOW 10000 10000 & ABOVE

1 78 63

2 71 52

3 84 49

4 69 61

5 64 53

6 66 66

7 65 59

8 65

9 45

10 66

11 71

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12 72

13 68

14 55

15 45

16 75

17 59

18 49

19 66

20 70

21 60

22 54

23 58

24 69

25 67

X 497 1517Mean (X) = X

N

71 60.68

Referring to Table 4.2.3, we find that the Mean (X) = 71of below 10000 income people is higher

than the Mean (X) = 60.68 of 10000 and above income people. Therefore, the null hypothesis is

rejected and it is concluded that there is significant difference impact of the high inflation rate on

the standard of living of low income and high income citizens of North Nazimabad Town,

Karachi.

.

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Null Hypothesi s 4

There will be no significant difference impact of the high inflation rate of younger and older of

citizens of North Nazimabad Town, Karachi.


Table 4.2.4 shows the application of Mean (X)for testing the null hypothesis 4. In the sample 32

respondents, 08 were below 25 years aged and 24 were 25 years and above aged. So, N 1 = 08 for

younger and N2 = 24 for older.

S.NO BELOW 25 YEARS 25 YEARS & ABOVE

1 56 78

2 63 66

3 71 55

4 76 69

5 45 74

6 70 52

7 59 688 60 64

9 70

10 59

11 46

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12 49

13 59

14 75

15 85

16 66

17 76

18 74

19 71

2 72

21 55

22 56

23 69

24 63

X 500 1571

Mean (X) = X

N

62.5 65.45

Referring to Table 4.2.4, we find that the Mean (X) = 62.5 of below 25years age is lower than

the Mean (X) = 65.45of 25 years and above age. Therefore, the null hypothesis is rejected and it

is concluded that there is significant difference impact of the high inflation rate of younger and

older citizens of North Nazimabad Town, Karachi.

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Section II: ITEM-WISE ANALYSIS

Item No # 1: INFLATION REDUCED THE PURCHASING POWER OF MIDDLEINCOME GROUP WITH REFERENCE TO QUALITY PRODUCTS.


1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

4) 2 = (fo-fe)2 / fe

5) Decision Rule: Reject Ho if computed 2 9.488 2

6) Conclusion

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 12 15 3 2 0 32

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fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 5.6 8.6 -3.4 -4.4 -6.4

(fo-fe)2 31.36 73.96 11.56 19.36 40.96

(fo-fe)2 / fe 4.9 11.556 1.806 3.025 6.4

2= (fofe)2/

fe

4.9 11.556 1.806 3.025 6.4 27.68

7

Conclusion

Referring to table of 2the tabulated value of 2= 9.488 at = 0.05, df = 4 is less than the

computed value of 2 = 27.687. Therefore the null hypothesis was rejected. It was found that

most of the respondents were agree with the view thatinflation rate reduced the purchasing

power of middle class group with reference to quality products.

Item No # 2: INFLATION SEVERELY AFFECTS THE MIDDLE INCOME GROUP

THAN HIGH INCOME GROUP.


1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

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4) 2 = (fo-fe)2 / fe

5) Decision Rule : Reject Ho if computed 2 9.488 2

6) Conclusion

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 12 10 5 3 2 32

fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 5.6 3.6 -1.4 -3.4 -4.4

(fo-fe)2 31.36 12.96 1.96 11.56 19.36

(fo-fe)2 / fe 4.9 2.025 0.306 1.806 3.025

2= (fofe)2/

fe

4.9 2.025 0.306 1.806 3.025 12.06

2

Conclusion


computed value of 2 =12.062. Therefore the null hypothesis was rejected. It was found that most

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of the respondents were agree with the view thatinflation rate severely affect middle income

group than high income group.

Item No # 3: INFLATION GREATLY INFLUENCES THE SMALL BUSINESS.


1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

4) 2 = (fo-fe)2 / fe


6) Conclusion

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 9 6 8 5 4 32

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fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 2.6 -0.4 1.6 -1.4 -2.4

(fo-fe)2 6.76 0.16 2.56 1.96 5.76

(fo-fe)2 / fe 1.056 0.025 0.4 0.306 0.9

2= (fofe)2/

fe

1.056 0.025 0.4 0.306 0.9 2.687

Conclusion

Referring to table of 2the tabulated value of 2= 9.488 at = 0.05, df = 4 is more than

the computed value of 2 =2.687. Therefore the null hypothesis was not rejected. It was found

that most of the respondents were disagree with the view thatinflation greatly influences the

small business.

Item No # 4: MIDDLE INCOME GROUP HAS LOW SAVING DUE TO INFLATION.


1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

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4) 2 = (fo-fe)2 / fe


6) Conclusion

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 11 12 4 2 3 32

fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 4.6 5.4 -2.4 -4.4 -3.4

(fo-fe)2 21.16 31.36 5.76 19.36 11.56

(fo-fe)2 / fe 3.306 4.9 0.9 3.0625 1.759

2= (fofe)2/

fe

3.306 4.9 0.9 3.0625 1.759 13.92

7

Conclusion

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computed value of 2 =13.927. Therefore the null hypothesis was rejected. It was found that most

of the respondents were agree with the view thatmiddle income group has low saving due to

inflation.

Item No # 5: HIGH INFLATION RATE CAUSE OF POLICTICAL INSTABILITY.


1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

4) 2 = (fo-fe)2 / fe


6) Conclusion

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Conclusion


the computed value of 2 =1.25. Therefore the null hypothesis was accepted. It was found that

most of the respondents were disagree with the view that high inflation rate cause of political

instability.

Item No # 6: HIGH INFLATION RATE EFFECTS COST OF PRODUCATION.


34

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 10 6 4 10 2 32

fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 3.6 -0.4 -2.4 3.6 -4.4

(fo-fe)2 12.96 0.16 5.76 12.96 19.36

(fo-fe)2 / fe 2.025 0.025 0.9 2.025 3.025

2= (fofe)2/

fe

2.025 0.025 0.9 2.025 3.025 1.25


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1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5

3) : 0.05

4) 2 = (fo-fe)2 / fe


6) Conclusion

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Conclusion


the computed value of 2 =2.568. Therefore the null hypothesis was not rejected. It was found

that most of the respondents were disagree with the view that high inflation rate effects cost of

production.

36

STRON

GLY

AGREE

AGREE UNDECID

E

DISAGR

EE

STRONGL

Y

DISAGRE

E

Total

fo 13 10 0 5 4 32

fe 6.4 6.4 6.4 6.4 6.4 32

fo-fe 6.6 3.6 -6.4 -1.4 -2.4

(fo-fe)2 43.56 12.96 40.96 1.96 5.76

(fo-fe)2 / fe 6.806 2.025 6.4 0.306 0.9

2= (fofe)2/

fe

6.806 2.025 6.4 0.306 0.9 2.568


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CHAPTER FIVE

SUMMARY, FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS

In the previous chapters, the problem of the study was introduced; the related literature

was reviewed, the methodology of the study was described and the findings of the study were setout. In this chapter will present a summary of the study, findings, conclusions and the

recommendations.

A. SUMMARY

The basic purpose of the study was to analyze the impact of the high inflation rate on the

purchasing power of middle income group of North Nazimabad Town, Karachi. The scope of the

study was limited to the middle income group population of North Nazimabad Town, Karachi.

The following ten hypotheses were formulated for the study.

1. There will be no significant difference in the impact of the high inflation rate on the

purchasing power of male and female citizens ofNorth Nazimabad Town, Karachi.


purchasing power of married and unmarried citizens ofNorth Nazimabad Town, Karachi.


standard of living of low income and high income citizens ofNorth Nazimabad Town,

Karachi.

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4. There will be no significant difference in the impact of the high inflation rate of younger

and older citizens ofNorth Nazimabad Town, Karachi.

5. The null hypothesis was rejected, it was found that most of the respondents were agree

with the view thatinflation rate reduced the purchasing power of middle class group with

reference to quality products .

6. The null hypothesis was rejected; it was found that most of the respondents were

agree with the view that inflation rate severely affect middle income group than high

income group.

7. The null hypothesis was not rejected; it was found that most of the respondents

were disagree with the view thatinflation greatly influences the small business.

8. The null hypothesis was rejected; it was found that most of the respondents were

agree with the view thatmiddle income group has low saving due to inflation.9. The null hypothesis was accepted; it was found that most of the respondents were

disagree with the view that high inflation rate cause of political instability.

10.The null hypothesis was not rejected; it was found that most of the respondents were

disagree with the view that high inflation rate effects cost of production.

The strategy of research was survey.

The population of the study consisted of all citizens of North Nazimabad Town Karachi; the total

sample size was 32 people. One research instrument, a questionnaire were developed for the

study. The questionnaire consisted of 20 statements. Several measures were taken to ensure the

validity and reliability of the research instrument. First, the statements were drawn from a

detailed review of the relevant literature and consultation with the experts to ensure content

validity. Second, the research instrument was administered personally so as to ensure hundred

percent rate of return. Third, the data collected were thoroughly edited. Quantitative technique

was used in analyzing data. The major hypotheses were tested through Mean (X).

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A. FINDINGS

1. No significant difference in the impact of the high inflation rate on the purchasing power

of male and female citizens ofNorth Nazimabad Town, Karachi was found.

2. The married citizens were found to more affected by inflation than unmarried citizens of

North Nazimabad Town, Karachi .

3. The less income people were found to be more affected by inflation than the more

income citizens ofNorth Nazimabad Town, Karachi .

4. The older citizens were found to be more affected by inflation than the younger citizens

ofNorth Nazimabad Town, Karachi .5. It was found that most of the respondents were agree with the view that inflation rate

reduced the purchasing power of middle class group with reference to quality

products.

6. It was found that most of the respondents were agree with the view that inflation rate

severely affect middle income group than high income group.

7. It was found that most of the respondents were disagree with the view that inflation

greatly influences the small business.

8. It was found that most of the respondents were agree with the view that middle income

group has low saving due to inflation.

9. It was found that most of the respondents were disagree with the view that high inflation

rate cause of political instability.

10.It was found that most of the respondents were disagree with the view that high inflation

rate effects cost of production.

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A. CONCLUSIONS

The findings of this study may be explained in view of the prevailing situation. First, there is no

difference in the impact of inflation on the purchasing power of male and female citizens of

North Nazimabad Town, Karachi. Second, the married citizens were found to be more affected

than the unmarried citizens of North Nazimabad Town, Karachi. This may be due to the fact that

the married people have to shoulder more household responsibilities than the unmarried people.

Third, the less income people were found to be more affected than the more income people of

Karachi. Fourth, the older people were found to be more affected by the inflation than the

younger people of Karachi. The study has made a significant contribution in the identification of

the 20 statements of the construct of high inflation rate on the purchasing power of middle

income group of North Nazimabad Town, Karachi.

B. RECOMMENDATIONS

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Inflation is one of the core problem affecting purchasing power .Taking a single measure can not

control it. However, if monetary and fiscal measures are wisely coordinated, it can greatly help

in controlling the continuous process of rising prices .The government should have a strict watch

on the prices of essential commodities in the country.It should take immediate steps in changing

the import and export duties and maintain the availability of goods is reasonable prices.

Domestic production should be encouraged instead of import .Investment should be given

preference in consumer goods instead of luxuries. Trading Corporation of Pakistan (TCP)

should

plan the process by which we can have the maximum production at lower cost at home, instead

of formulating plans to import the items. Reassess the complete system of Direct and indirect

Taxes .Domestic productions at less cost of production willnot only make the availability of

goods much easier but Aggregate Supply will also increase, and domestic industry will get

developed. Unfortunately, in Pakistan, has never undergone such planning process to solve

inflation problem . Government should need proper strategic planning to solve high inflation

rate.

REFERENCES

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Akhtar , Qurratulain (October 29,2006), Economic Survey of Pakistan 2005-2006.

Federal Bureau of Statistics.

Economic Survey of Pakistan 2005-2006.

Economic Theory (K.K.Dewett,P.A.Samuelson,Pakistan).

www.investorwords.com

Journal of the Chief Economist of WB(The Writer).

Razaq, Asma (May 28, 2011),Economic Survey to unveil 14.1 percent inflation ,Business

Recorder.

Statistical Supplement of Economic Survey 2009-10

CIA World Factbook 2011.

Wikipedia

www.investopedia.com

www.tradingeconomics.com/pakistan/inflation

www.dictionary.com

www.investopedia.com

www.about.com

www. buzzle.com

www.crisistimes.com/inflation

APPENDIX # 1

42
http://www.investopedia.com/http://www.tradingeconomics.com/pakistan/inflationhttp://www.dictionary.com/http://www.investopedia.com/http://www.crisistimes.com/inflationhttp://www.investopedia.com/http://www.tradingeconomics.com/pakistan/inflationhttp://www.dictionary.com/http://www.investopedia.com/http://www.crisistimes.com/inflation


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DADA BHOY INSTITUTE OF HIGHER EDUCATION

IMPACT OF THE HIGH INFLATION RATE ON THE PURCHASING

POWER OF THE MIDDLE INCOME GROUP OF NORTH NAZIMABAD

TOWN, KARACHI

SECTION I: PARTICULARS ABOUT THE RESPONDENTS.

DIRECTIONS: PLEASE ANSWER ALL THE QUESTIONS.

1.1- AGE

BELOW 25 YEARS 25 TO 35 YEARS 36 TO 45 YEARS ABOVE 46 YEARS

1.2- GENDER

MALE FEMALE

1.3- MARITAL STATUS

MARRIED UNMARRIED

1.4- QULIFICATION?

1.5- NAME OF THE ORGANIZATION WHER YOU WORK?

1.6- HOUSE HOLD INCOME (IN RUPEES)?

LESS THAN 10,000 10,000 TO 25,000 25,000 TO 35,000 35,000 AND ABOVE

SECTION II: MEASUREMENT SCALE

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LISTED BELOW ARE SEVERAL STATEMENTS AGAINST EACH. THERE IS A FIVE

POINTSCALE: STRONGLY AGREE (SA), AGREE (A), UNDECIDED (UD), DISAGREE

(DA), STRONGLY DISAGREE (SD), PLEASE PLACE A CHECK MARK () ON THE

POINT TO WHICH YOU AGREE.

FACTORS OF HIGH INFLATION RATE SA A UD DA SD

2.1INFLATION REDUCED THE PURCHASEING POWER OF MIDDLE

INCOME GROUP WITH REFERENCE TO QUALITY PRODUCTS.

2.2 INFLATION SEVERLY AFFECT THE MIDDLE INCOME

GROUP THAN HIGH INCOME GROUP.

2.3 INFLATION GREATLY INFLUENCES THE SMALL BUSINESS.

2.4 MIDDLE INCOME GROUP HAS LOW SAVING DUE TO

INFLATION.

2.5 HIGH INFLATION RATE CAUSE OF POLICTICAL

INSTABILITY.

2.6 HIGH INFLATION RATE EFFECTS COST OF PRODUCATION.

2.7 HIGH INFLATION RATE DECREASES THE VALUE OF

MONEY.

2.8 HIGH INFLATION RATE DECREASES THE ECONOMY

GROWTH.

2.9 HIGH INFLATION RATE DECREASES THE NATIONAL

SAVINGS.

2.10 HIGH INFLATION RATE CHANGES THE STANDARD OF

LIVING.

2.11 HIGH INFLATION RATE DECREASES THE PURCHASING

POWER.

2.12 HIGH INFLATION RATE CAUSE OF POVERTY.

2.13 HIGH INFLATION RATE CAUSE OF HIGHER DUTIES AND

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INDIRECT TAXES.

2.14 HIGH INFLATION RATE CAUSE OF LOW FOREIGN

INVESTMENT.

2.15 HIGH INFLATION RATE CAUSE LESS RETURN OFINVESTMENT.

2.16 INFLATION IS REFLECTED THROUGH HIGH PRICES.

2.17 HIGH INTEREST AND LOW OUTPUT ARE MAIN CAUSES OF

INFLATION.

2.18 INFLATION PRESSURES RISES WITH HIGH COMMODITY

PRICES.

222 2.19 INFLATION IS ONE OF THE CORE PROBLEM AFFECTING

RCH PURCHASING POWER.

2.20 INFLATION HIGHLY AFFECTED OF MARRIED CITIZENS

RE A THAN UNMARRIED CITIZENS.

Documents

Research on Inflation Rate (1)