Price Trends During the current fiscal year 2010-11 an upward trend persisted in all indices used to measure

various kind of inflation. CPI inflation averaged at 14.1 percent, WPI 23.3 percent and SPI inflation increased at 18.2 percent for July-Apr 2010-11 which is higher than the corresponding period of last year. The underlying factors for this spike are; rising international oil prices, spike in textile products prices and shortages of key consumer items in the market. Inflation in 2010-11 Inflation as measured by the changes in Consumer Price Index (CPI) has escalated by 14.1 percent in July-April 2010-11 as against 11.5 percent in the comparative period of last year. During this period food has remained the major driver of the inflation on the back of major supply disruptions owing to devastating floods as well as spike in imported fuel and food stuff prices. Food inflation is persistently rising and recorded at 18.4 percent as against 12.0 percent in the comparable period of last year. Non-food component witnessed an increase of 10.4 percent in this period which shows some adjustment against 11 percent in the comparable period of last year. Non-food inflation either stagnated in this period or registered modest decline but its contribution to rise in overall inflation is 52.6 percent while food inflation accounted for 47.4 percent increase in CPI inflation. The contribution is mainly because of higher weight of non-food (59.7 percent) as food accounts for 40.3 percent stake in the index.

reasons The beginning of the current year 2010-11 in Pakistan saw number of unfavourable factors impacting the supply and demand situation which

created imbalances in the economy. Massive floods swept through onefifth of the country and caused massive damages to crops, livestock and infrastructure which resulted in sharp acceleration in the commodity price and spike in inflation. The acute shortage of items of mass consumption necessitated substantial imports at rising landed cost. While on the production front, the imported inflation via pass through effect of escalating oil prices consequently raised transport freights, production cost of materials and a substantial hike in all the consumable items or services. Some Structural problems of power outages and eaknesses in the supply chains impacted the real sectors production performance added yet another push factor to the general price hike trend. The global prices are also adding fuel to the fire as commodity and crude oil prices surged at unprecedented pace since July 2010. How control inflation: Monetory policy: The control of inflation has become one of the dominant objectives of government economic policy in many countries. Effective policies to control inflation need to focus on the underlying causes of inflation in the economy. For example if the main cause is excess demand for goods and services, then government policy should look to reduce the level of aggregate demand. If cost-push inflation is the root cause, production costs need to be controlled for the problem to be reduced.ion in the next fiscal year.\ They set interest rates with the aim of keeping inflation under control over the next two years. Monetary policy can control the growth of demand through an increase in interest rates and a contraction in the real money supply.
Higher interest rates reduce aggregate demand in three main ways;

 Discouraging borrowing by both households and companies Increasing the rate of saving (the opportunity cost of spending has increased) Higher interest rates could also be used to limit monetary inflation. A rise in real interest rates should reduce the demand for lending and therefore reduce the growth of broad money.
Fiscal Policy

Higher direct taxes (causing a fall in disposable income)

Lower Government spending A reduction in the amount the government sector borrows each year (PSNCR) These fiscal policies increase the rate of leakages from the circular flow and reduce injections into the circular flow of income and will reduce demand pull inflation at
the cost of slower growth and unemployment.

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).

Recommendations
Increase interest rates Promoting national savings by offering positive rate of return on deposits and identifying profitable avenues of investment. Regulating Private banks making loans to private individuals or businesses Reduction in sales tax (GST) Increase direct taxes. Monopoly Control. Subsidising the costs of firms will decrease production cost allowing them to lower their prices, also reducing inflation. Prevention of Profiteering & Hoarding

 government needs to implement decisive reforms to increase the availability of energy, which should help in improving the industrial capacity utilization and thus domestic supply, easing the inflationary pressures Regulate increases in electricity, gas, and domestic petroleum product prices to curb down Cost-push Inflation.