EuroEconomica, Vol 31, No 4 (2012)

Abstract

This study is going to examine the relationship among consumer price index (CPI), economic performance, and wheat support prices in order to determine the level of inflation in case of Pakistan. The analysis is made on the monthly time series data from January-1990 to December-2010. The CPI is used as an inflation indicator by taking the percentage change; the GDP is used as the growth variable for measuring economic performance. The ARDL technique had been used to investigate such relationship. The results derived by applying Wald Test suggest that there is a long run cointegrated relationship among the CPI, economic performance and wheat support price. In the short run, the wheat price does affect the inflation.  The causality test results show that there is only unidirectional causality between wheat price and rate of inflation. In the end, it is suggested that the tight monetary policy is the not the solution of problem in order to control inflation, on other hand fiscal policy is also contributing in inflation.