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The Case:

Containing inflation is not easy and stabilizing prices of essential food items is even more difficult. In Pakistan, effective monitoring of food prices is nowhere in sight. Repeated warnings by officials against profiteering fall on deaf ears.  When supplies are disrupted, prices move up. Food inflation peaked in FY11 to 18% against aggregate CPI inflation of 13.7% because in that year, super floods had washed away pulses, vegetables and other minor food crops and wrecked farm to market transportation. Sowings and harvests of wheat, rice, maize and sugarcane were also hit. The very next year, food inflation equaled overall inflation of 11% as supplies had improved after increase in crop harvests and improvement in logistics. In the last fiscal year too, food inflation of 7.4% was slightly higher than the general inflation of 7.1%. But in six months of the current fiscal year, increase in food prices has been higher than increase in CPI inflation as a whole, 9.9% against 8.9%. According to latest inflation report of State Bank of Pakistan (SBP), prices of 17 out of 20 food items went up in December with year-on-year increase ranging between 2% in case of sugar, to 78% in case of onions. Reports of previous five months had painted almost identical picture of prices of essential food items. According to Pakistan Bureau of Statistics (PBS), food inflation in small towns and villages rise faster than in major cities, it essentially means supplies are really scant. It also means that in the given period, cost of transportation of some food items from cities to rural areas has been higher than intra-city transportation cost. There is even huge difference in the prices of rice, wheat flour, sugar, pulses, fish, eggs and poultry meat in various parts of the country. Retail food prices also vary among various cities and even between different markets of the same city. Some food items like vegetables, fruits and pulses show erratic changes in prices also because they are perishable. Not only Pakistan, but other countries in the region like IndiaChinaBangladesh and Sri Lanka have lately experienced abnormal rise in prices of onions and potatoes simply because a late or faulty assessment of crop shortage made it difficult for them to compensate supply gaps with imports.

 

Requirement:

Being a student of Economics, carefully analyze the above case and think over the factors that cause a huge difference in the prices of food items in various parts of the country. What measures should be taken in order to control the food inflation as a whole? Discuss logically.

Important Note:

For better understanding of the case, read this article thoroughly.

http://epaper.dawn.com/DetailNews.php?StoryText=27_01_2014_604_001


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 That moment when i see every time ECO401 GDB 

check this subject group... 

CONTAINING inflation is not easy and stabilising prices of essential food items is even rnore difficult. `Difficulties, in our context, are diverse and corn-plex,` according to a senior central banker.

`We`re in the IMF programme and are supposed to keep fiscal and monetary aggregates at certain levels. That leaves little room for influencing prices via fiscal or monetary measures. But provinces can exercise administrative controls more effectively.` Effective monitoring of food prices is nowhere in sight. Repeated warnings by officials against profiteering fall on deaf ears.

And administrative apparatus to deal with the issue is absent altogether or not functioning well.

When supplies are disrupted, prices move up: Food inflation peaked in FY11 (to 18pc against aggregate CPI inflation of 13.7pc) because in that year, super floods had washed away pulses, vegetables and other minor food crops and wrecked farmto-market transportation. Sowings and harvests of wheat, rice, maize and sugarcane were also hit. The very next year, food inflation equaled overall inflation of 11pc, as supplies had improved after increase in crop harvests and improvement in logistics.

In the last fiscal year too, food inflation at 7.4pc was only slightly higher than the general inflation of 7.1pc. But in six months of the current fiscal year, increase in food prices has been higher than increase in CPI inflation as a whole-9.9pc against 8.9pc.

According to SBP`s latest inflation report, prices of 17 out of 20 food items went up in December with year-on-year increase ranging between two per cent in case of sugar, to 78pc in case of onions. Reports of previous five months had painted almost identical picture of prices of essential food items.

Measuring food inflation is getting trickier for fiscal and monetary policy making.

Prices are collected from a number of markets in a city and the city`s average inflation is then incorporated into country-wide index to calculate CPI numbers.`The problem here is that,` points out an official of the ministry of finance, `food prices in rural and urban centres show big difference because price determinants vary. Besides, their individual weight in CPI basket also varies and that variance is not captured well in stats.

Unlike in big cities like Karachi and Lahore, people in rural areas consume much lower volumes of processed, packaged and cooked food. This means food inflation in such areas reveals more about the changes in prices of raw food items. Andsince food crops are grown, and livestock reared, in rural areas prices of raw food items and dairy products there show lesser increase compared to urban areas.

`So, when food inflation in small towns and villages rise faster than in major cities, it essentially means supplies are really scant,` says an official of Pakistan Bureau of statistics involved in monitoring of inflation data. `It also means that in the given period, cost of transportation of some food items from cities to rural areas has been higher than intra-city transportation cost.

Take for example, a vast difference between prices of rice, wheat flour, sugar, pulses, fish, eggs and poultry meat in various parts of the country. The latest inflation report of PBS shows that wheat flour is selling at a price that is higher by Rs7 per kg in Quetta than its lowest price in Rawalpindi.

Similarly, per kg price of Basmati broken in Quetta is Rs27.5 higher than in Bahawalpur. Huge difference, isn`t it! Retail food prices vary among various cities, and even between different markets of the same city, for several reasons. These include local cost of production, landed cost of imported items, cost of intra-city transportation, size of the market and size of the population it serves, storage capacities of raw food items, inventory buildup capacities, hoarding tendencies, degree of administrative controls on prices (or the lack of it) etc.

`It`s easier and much less expensive to establish a Chakki (small wheat grinding mill) than to set up a rice processing mill, says a Karachi-based flour miller to bring home the point that local small-scale investment in food processing also influences prices. And so does a policy incentive.

`Provinces provide subsidised wheat not only to large flour millers but also to Chakki Walas. In rice milling, there is no such thing as subsidised rice milling.

Some food items like vegetables, fruits and pulses show erratic changes in prices also because they are perishable. Not only Pakistan, but other countries in the region like India, China, Bangladesh and Sri Lanka have lately experienced abnormal rise in prices of onions and potatoes simply because a late or faulty assessment of crop shortage made it difficult for them to compensate supply gaps with imports. `An early warning system (regarding crops) and timely decision on imports are the two policy pillars in checking such price hikes, says an official of Ministry of National Food Security and Research. m -Mohiuddin Aazim

koi mujy b smjh da is mai karna kya ha mujy kuch smjh ni a raha 

Stop printing money
Inflation is the reduction of value in the currency. Now your currency can lose value in other ways, such as high debt that makes people fear a collapse of the issuing government, but that's not inflation. When the US Mint prints more money than it destroys, that dilutes the current pool of money. As a simple example, imagine if there was only $10 dollars in the economy and 10 loaves of bread in the marketplace @ a cost of $1 - then the Mint printed an extra $10 but there are still only 10 loaves of bread. The cost of production can also lead to "inflation," but I consider that a cost of living increase. If you're gonna pay that hamburger flipper more than minimum wage so he can support a growing family, then you'll have to pay more for your 1/4 lb meat-muffin.


Reduce cost of goods -- f.e., by:
discovering and exploiting more resources;
improving efficiency of food production;
upgrading training and education of workers.

raising interest rates is one of the chanciest ways of trying to reduce inflation, because it works mainly by inhibiting people who might borrow money with the intention of investing it in an attempt to increase their output

WHAT IS THE BEST WAY TO CONTROL INFLATION

It depends on what is driving the inflation. If it is an excess of money supply, then the answer is to increase interest rates, increase bank reserve requirements, and to sell government securities to the banks. These measures also work if the inflation is caused by rising import prices at times when the Indian currency is falling. Fiscal policy can also contribute to lower demand and money supply by increasing taxes.

If it is from excessive government demand, then the answer is for the government to reduce spending. If from excessive consumer demand then the government can introduce policies that promote saving over spending.

If it is caused by demographic factors, such as large family sizes and a lot of young people as a percentage of the population, then policies that encourage smaller families will be effective.

Please Discuss here about this GDB.Thanks

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Stop printing money
Inflation is the reduction of value in the currency. Now your currency can lose value in other ways, such as high debt that makes people fear a collapse of the issuing government, but that's not inflation. When the US Mint prints more money than it destroys, that dilutes the current pool of money. As a simple example, imagine if there was only $10 dollars in the economy and 10 loaves of bread in the marketplace @ a cost of $1 - then the Mint printed an extra $10 but there are still only 10 loaves of bread. The cost of production can also lead to "inflation," but I consider that a cost of living increase. If you're gonna pay that hamburger flipper more than minimum wage so he can support a growing family, then you'll have to pay more for your 1/4 lb meat-muffin.


Reduce cost of goods -- f.e., by:
discovering and exploiting more resources;
improving efficiency of food production;
upgrading training and education of workers.

raising interest rates is one of the chanciest ways of trying to reduce inflation, because it works mainly by inhibiting people who might borrow money with the intention of investing it in an attempt to increase their output

WHAT IS THE BEST WAY TO CONTROL INFLATION

It depends on what is driving the inflation. If it is an excess of money supply, then the answer is to increase interest rates, increase bank reserve requirements, and to sell government securities to the banks. These measures also work if the inflation is caused by rising import prices at times when the Indian currency is falling. Fiscal policy can also contribute to lower demand and money supply by increasing taxes.

If it is from excessive government demand, then the answer is for the government to reduce spending. If from excessive consumer demand then the government can introduce policies that promote saving over spending.

If it is caused by demographic factors, such as large family sizes and a lot of young people as a percentage of the population, then policies that encourage smaller families will be effective.

haey o Allah firrrr 

itna lengthy scenario. 

invincible Mano...if u do copy n paste the material written by someone ,kindly at least mention the person's name as this is the crime to grab the words of another person and post by yourself as it is... bcz this is struggle of another person..this is called (plagiarism). THanks.. this GDb Solution is written by me in my own words ...and other reasons are all mine own and i didn't copy n paste from net... 

n u picked from the study discussion ...and same lines are copied as (in my point of view) you can write as .(.in the author's point of view) ... kindly  donot next time... THanks... 

  

There are various reasons of price in food items in different cities of a country

As we know that , Inflation is defined as a rise in the general price level. In other words, prices of many goods and services such as housing, apparel, food, transportation, and fuel must be increasing in order for inflation to occur in the overall economy.

so two most important factors are causing this issue .

Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy.

            Demand-pull inflation

 

1.Demand-pull inflation for food prices occurs when aggregate demand for food items in an economy rises more rapidly than an economy’s productive capacity. See Chart 1 for an illustration of what will likely happen as a result of this shock. The increase in money in the economy will increase demand for food products from D0 to D1. In the short run, businesses cannot significantly increase production and supply (S) remains constant. The economy’s equilibrium moves from point A to point B and prices will tend to rise, resulting in inflation.

    

Cost-push inflation, on the other hand, occurs when prices of production process food inputs increase. Rapid wage increases or rising raw material prices are common causes of this type of inflation. The sharp rise in the price of imported oil during the 1970s provides a typical example of cost-push inflation (illustrated in Chart 2). Rising energy prices caused the cost of producing and transporting goods to increase which ultimately became the reason of the high prices of various products of food in Pakistan. Higher production costs led to a decrease in aggregate supply (from S0 to S1) and an increase in the overall price level because the equilibrium point moved from point Z to point Y.

3. other reasons are 

i Feudalism in terms of paying low wages to farmers and middle men.

ii transportation cost as i have mentioned earlier 

iii unequal distribution of land which causes to produce only few food items and then those prices rise to maximise the utility as well as to maximise the profits.

iv imported goods are another reason which include higher tax rates ( tariffs ) which lead the high food prices.

(In my point of view , these are the reasons which are increasing the food items and hence the overall inflation.)

 .....but there could be more reasons regarding it ... Think about it @ All. 



Regards,

Rapenzil...

best of luck @ All..

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