Inflation has come down dramatically – from 28.3 percent in January 2024 to 1.5 percent in February 2025. The question remains: why isn’t there a feel-good factor?

Inflation, economists maintain, is the result of an increase in the money supply relative to the supply of goods. If the economy is not running at capacity, read unused factors of production (labour, credit, raw materials), inflation may jumpstart the wheels of industry and the increased output would, in turn, spur consumption (aggregate demand) and thereby propel the economy towards growth.

If however prices are falling, consumers may stave off purchases on the assumption that prices would come down further, which would reduce aggregate demand translating into lower output, layoffs and a faltering economy.

This implies a bit of inflation is good for the economy, so argue economists, to fuel output and for this reason the United States Federal Reserve targets a 2 percent inflation rate based on the Personal Consumption Expenditures Price Index defined as capturing inflation/deflation across a wide range of consumer expenses and reflecting changes in consumer behaviour.

Pakistan does not undertake a Personal Consumption Expenditures Price Index though the Pakistan Bureau of Statistics (PBS) does quantify, in the weekly updated Sensitive Price Index (SPI) that covers only 17 urban centres and takes note of 51 essential items, the impact on five-income groups – 1 – income up to 17,732 rupees; 2 – income from 17,733 to 22,888 rupees; 3 – income from 22,889 to 29,517 rupees; 4 – income from 29,518 to 44,175 rupees; and........

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