Coping with the inflation cycle

The structural theory of inflation says inflation is caused by a ‘structural’ weakness in a country’s capacity to produce goods or maintain an adequate flow of supply. General under-productivity creates imbalances between supply and demand. Inflation that stems from structural issues may not be easily changed by monetary policy. “The inflation rate is falling faster than we expected, which is a positive sign for our economy,” says Finance Minister Muhammad Aurangzeb, adding, “Continued efforts are needed to maintain this trajectory.” The annual consumer inflation is stated to have plunged to a 44-month low of 6.9 per cent in September “owing to a steady decline in global commodity prices, an increase in domestic agricultural production and a stable currency rate”, as per a Dawn article. The decline is also partly attributed to a high-base effect from last year when annual inflation stood at 31.4pc.