Inflation

When Our Shoe leather Wears Out Faster Than Yesterday;
Inflation, With Special Reference to Inflation in Afghanistan


Each and every one of us have experienced a situation where the “the shoe leather cost” and “the cost of arranging menues” is quite higher than the previous days.  These two simple, yet amusing phrases, are ensembling inflation; a phenonomenon whose existance goes back so far as the existance of money itself; a phenomenon that affects the lives of the common men, a great deal in scale, depending upon its severity.

A)  Theoretic Analysis;
Inflation is the rising trend of prices of goods and services at a particular time, as campared to an earlier time. It is a situation where the consumer pays more than he/she used to pay, as the real value of money or the purchasing power of money has decreased. The level of Inflation is represented by inflation rate which is usually calculated on the basis of a Base Year and using certian indexes such Consumer Price Index, Commodity Price Index, Core Price Index and etc. The the year 2000 is accpeted as the Base Year in Afghanistan.

           Speaking about the Causes of Inflation, historically, there have been different inflation theories.
1. The Quality Theory of Inflation holds that inflation is a co-efficient of the rise in the quality of products (change in shape, size, taste, ingredients). However, seeing the fact that not each case of rise in the prices of goods and services coincide with an update in quality of goods and services, The Quality Theory of Inflation, fails to explain the causes of inflation. Therefore the Quantity theory of Inflation joins the arena.
2. The Quantity theory of Inflation asserts that there is always a direct correlation between the supply level of money and inflation.
[1] According to this school, when the supply level of money is increased, its purchasing power depreciates, which then ensemble itself in a relative rise of the prices of goods and services. In the words of Nobel Laureate“Supply is always a monitary phenomenon”.
4. The Marxian Theory of Inflation, also known as the Conflict Theory of Inflation, is based on inconsistent aspiration of workers and capitalists for living standards and profit rates.
[2]  [3]
5. John Maynard keynes and his followers, however, opposed the theory, stating that changes in the money supply do not directly affect the prices of goods and services. According to them, inflation occurs when the aggregate demand exceeds the aggregate supply of goods and services, creating pressure on economics.[4]
6. The recent Development in this field is the Traingle Model of Inflation named by Robert J. Gorden, a prominent New-Keynesian economist. The Triangle Model holds that there are three causes of Inflation;  A. Demand-Pull Inflation             B. Cost-Push Inflation 
C. Built-in Inflation as a result of adaptive expectations
[5]

B)  Inflation in Afghanistan
A war-trodden country with an economy mostly dependant on agriculture and agro-related produces that has been heading towards capitalism since as far as 1920’s, Afghanistan, has been a major victim of high inflation in South-East Asia.
            Using the monitarist approach towards inflation in Afghanistan, there seems to be a proportionally direct relation between the amount of money in circulation and the rate of surge in the prices of goods and services or inflation. A 2011 report named South Asia Economic Report[6] shows the rate of inflation and money supply growth for Afghanistan in the following manner:
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
Inflation Rate
-
-
5.1
24.1
13.2
12.3
5.1
7.0
8
Money Supply Growth
-
-
-
50.5
31.9
16.2
12.4
19.0
14.0


However, there is also one more and somewhat precise way to look at the issue. Seeing the fact that Afghanistan is an agro-based economy, with no major industrial product, most the finished and unfinished goods are imported either from Pakistan or Iran. These two trade partners of afghanistan, themselves, have been couping with an inflation rate with two digit numbers. Therefore, inflation in Afghanistan, is said to be  an imported inflation[7]; inflation that has intered the economy by importing inflated core goods or usual goods.
Besides external causes of inflation in Afghanistan which embodies itself as imported inflation, there are domestic reasons too, that results in high rate of inflation. These are;
a. Strucutural issues in agricultural sector; Issues that halts productivity, creating scarcity,
b. Structural issues in Industrial sector; such as lack of highly-poductive machinary, lack raw materials, lack of skilled labors, energy inefficiency and etc,
c. Structural issues in international trade; deficit balance of payment and etc,
d. Structural issues in government; corruption, mis-management, over-spending, lack ofcommitment and etc.
e. Monopolies, droughts are other causes of inflation in Afghanistan
[8] [9].

C)   Why Inflation Sucks?
“You Call It Inflation, I Call It Theft”[10], so wrote Bill Flax. Even though, there have been lots of claims as regards the benefits of inflation, its impossible to undermine the losses it imposes on the common men’s pockets and hence on economy as a whole. Seeing the fact that the wages of most of the classes of society is relatively fixed, it is right to say that inflation is theft, who ever is cause; whether the government, or the entrepreneurs.
 What ever approach we use to explain inflation, we will descend on one common platform; that says inflation sucks. We will feel the edge of this knife, better, if only we put ourselves instead of masses of workers in Afghanistan whose average income in a month is not more than Afg 7000, which, hardly, keeps them alive.
In short, the problem of Inflation will continue, so long as production is aimed at maximizing benefit, not meeting the necessities of the common men.

                                                                                         








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