Across the world, inflation is perhaps the only macroeconomic topic (outside of unemployment) that helps economists get a popular audience. The situation is no different in Pakistan; the subject has been researched extensively by local and foreign academia as well as the multilateral agencies. Likewise, the media – though mostly interested in sound-bite economics – has frequently touched upon inflation whenever it became topical to do so.
However, the focus of the former has mostly been limited to finding the determinants of inflation, whereas the latter has had a tendency of setting inflation as the agenda only when consumer prices soar to the erosion of peoples’ wallets. Despite the popular perception in Pakistan that official inflation numbers are artificially underestimated, the measurement of inflation in Pakistan – as a subject of academic research and as a topic for popular economic discourse – has rarely caught traction, if ever1 . This policy paper attempts to fill that gap.
Supported by Friedrich Naumann Foundation for Freedom, the idea behind this study is to carry out an objective and independent analysis of the existing methodological issues in measuring inflation in Pakistan. Specifically, the aim of this paper is to critically analyze inflation measurement from methodological aspects focusing on Consumer Price Index (CPI) and Wholesale Price Index (WPI), without any underlying intent to make it a political statement against or in favour of any particular party or any government, past or present.
It is ultimately the government’s responsibility to measure inflation – and measure it correctly. However, it is the job of the civil society to create a demand for better measurement of inflation. To that end, it is hoped that this study will serve as an accessible paper, and will initiate an open and informed dialogue on the methodological issues pertaining to inflation in Pakistan and its consequences for the country’s economy.