CHAPTER ONE INTRODUCTION

The present chapter would introduce the problem understudy.

A. BACKGROUND
Since large the economic conditions are unstable in Pakistan. There are various factors influencing economic growth. Inflation remains one of the important indicator .It is a key indicator of a countrys economic condition and provides insight on the state of economic system and the macroeconomic policies that govern it. The inflation rate in Pakistan (I.R.P) during last decade was, year I.R.P 2000 5.2 2001 4 2002 3.9 2003 2.9 2005 9.1 2006 7.9 2007 7.6 2008 20.3 2009 13.6 2010 13.4

Source: CIA World Fact book Razaq (2011) stated that in Pakistan, inflation in the Pakistan has been increasing gradually. The projected inflation rate in Pakistan would be 16 percent for 2011 and 13 percent for 2012. The 14.1 percent inflation rate of Pakistan has already been projected by IMF. IMF stated on November 15, 2010, that the average inflation rate of 14 percent, and real GDP growth of 23/4 percent during July-April 2010-11.Tthe CPI inflation of Pakistan increased by 14.08 percent over the same period of last year on the back of sharp increase in the prices of food items fuelled by higher petroleum prices and electricity tariff. All different sectors of economic system are inter linked with every other which implies if any sector is affected then all other sectors will also face the after effects. As a result, due to inflation these days the price hike is at its peak as the common commodity cost is increased to almost 90%. While the middle class fixed salary individuals have been drawing same salaries which results in very reduced buying power of majority of Pakistani citizens (www.tradingeconomics.com). Inflation can mean either an increase in the money supply or an increase in price levels. Generally, when we hear about inflation, we are hearing about a rise in prices compared to some
1

benchmark. If the money supply has been increased, this will usually manifest itself in higher price levels - it is simply a matter of time. For the sake of this discussion, we will consider inflation as measured by the core Consumer price index(CPI), which is the standard measurement of inflation used in the U.S. financial markets. Core CPI excludes food and energy from its formulas because these goods show more price volatility than the remainder of the CPI (www.investopedia.com). Akhtar (2006) stated that Inflation is one of these core problems. Government claims that in order to keep the prices of essential commodities under control, it has been taking various measures throughout the year. These measures include: a liberal import regime for food items including zero rating of the imports of these commodities. In order to provide relief to the low and fixed income groups, the government has been selling wheat flour and sugar through the outlets of the Utility Stores Corporation (USC) at much lower prices than the market. In order to augment supplies of essential commodities in shortest possible time and at lower freight charges, the government has also allowed the import of various items through land routes from neighboring countries. But, all these are secondary measures. Problems like inflation and poverty etc cant be resolved by applying the secondary measures directly, these need strategic planning. Unfortunately, in Pakistan, these core problems have never undergone such planning process. Government has never invited foreign investment for the production of basic goods. Agriculture sector, on which the major industries rely for the raw material has not been given sufficient subsidies. Trading Corporation of Pakistan (TCP) should plan the process by which we can have the maximum production at lower cost at home, instead of formulating plans to import the items. Domestic productions at less cost of production will not only make the availability of goods much easier but Aggregate Supply will also increase, and domestic industry will get developed. As a result, due to inflation these days the value hike is at its peak as the common commodity cost is increased to almost 90%. While the middle class fixed salary individuals have exact same old salaries which results in very reduced buying power of majority of Pakistani citizens.

B.PURPOSE

 GENERAL PURPOSE

The general purpose of the study was to study the impact of the high inflation rate on the purchasing power of middle income group of North Nazimabad Town, Karachi.

SPECIFIC PURPOSE
The study specifically targets the following areas:

To study the living style and standard of the middle income group. To analyze the factors which increases the inflation rate? To study the impact of high inflation rate on purchasing power of the middle income group . To study the factors responsible for low saving.

C.RESEARCH QUEATIONES
The following are the research questions:

How the high inflation rate effects on the living style and standards of the middle income group? Which factors increases the inflation rate? How the inflation rate impact on purchasing power of the middle income group? Which factors responsible to low saving?

D.JUSTIFICATION
The study is expected to yield the following benefits: It helps in advancement of knowledge. It helps to provide the guidelines to the authorities concerned. It will be helpful for other researchers in the filed. Ways are identified to reduce the inflation rate.
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E.SCOPE
The study was limited to all the middle income group population of North Nazimabad Town, Karachi.

F.DEFINITION OF THE KEY TERMS

IMPACT: Strong effect, influencing strongly (www.dictionary.com). INFLATION RATE: The percentage increase in the price of goods and services of usually annually (www.dictionary.com). MIDDLE GROUP: The socioeconomic class between the working class and upper class, usually including professional, highly skilled laborers and lower and middle management (www.dictionary.com).

G.BASIC ASSUMPTION

Most of the population of North Nazimabad Town is comprised of middle class citizens. Majority of the citizen are salaried class individuals. The people mostly purchase the grocery on monthly basis.

CHAPTER TWO REVIEW OF THE RELATED LITERATURE

Previous chapter introduced the problem. This chapter would describe the literature review with full details.

A.IMPORTANCE

The inflation rate is one of the most important economic forces consistently weighing on the value of a nation's currency. Inflation means a sustained rise in prices. Inflation can be Creeping, walking or trotting, running, hyper or gallop, demand pull, cost push, mixed, markup or stagflation according to velocity and nature. Inflation is caused by some demand side factors (Increase in nominal money supply, Increase in disposable income, Expansion of Credit, Deficit Financing Policy, Black money spending, Repayment of Public Debts, Expansion of the Private Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of production or inputs, Industrial Disputes, Natural Calamities, Artificial Scarcities, Increase in exports (excess exports), Global factors, Neglecting the production of consumer goods, Application of law of diminishing returns).

Akhtar (2006) stated that Inflation affects the different sectors of the economy like Effects on the distribution of income and wealth. Effects on production, Effects on the Government. Effects on the Balance of Payment. Effects on Monetary Policy. Effects on Social Sector. Effects on Political environment.
5

Effect on different classes of the people (Debtors & Creditors, Salaried Class, Wages earners, fixed income group, Investors and shareholders, Businessmen, Agriculturists).

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). Inflation is one of the core problems. Government claims that in order to keep the prices of essential commodities under control, it has been taking various measures throughout the year. These measures include: a liberal import regime for food items including zero rating of the imports of these commodities. In order to provide relief to the low and fixed income groups, the government has been selling wheat flour and sugar through the outlets of the Utility Stores Corporation (USC) at much lower prices than the market. In order to augment supplies of essential commodities in shortest possible time and at lower freight charges, the government has also allowed the import of various items through land routes from neighboring countries. But, all these are secondary measures. Problems like inflation and poverty etc cant be resolved by applying the secondary measures directly, these need strategic planning. Unfortunately, in Pakistan, these core problems have never undergone such planning process. Government has never invited foreign investment for the production of basic goods. Agriculture sector, on which the major industries rely for the raw material has not been given sufficient subsidies. Trading Corporation of Pakistan (TCP) should plan the process by which we can have

the maximum production at lower cost at home, instead of formulating plans to import the items. Domestic productions at less cost of production will not only make the availability of goods much easier but Aggregate Supply will also increase, and domestic industry will get developed. As a result, due to inflation these days the value hike is at its peak as the common commodity cost is increased to almost 90%. While the middle class fixed salary individuals have exact same old salaries which results in very reduced buying power of majority of Pakistani citizens (AKHTAR, October, 29, 2006). In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. Inflation is a key indicator of a country and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society. Inflation is the rise in the prices of goods and services in an economy over a period of time. When the general price level rises, each unit of the functional currency buys fewer goods and services; consequently, inflation is a decline in the real value of money a loss of purchasing power in the internal medium of exchange, which is also the monetary unit of account in an economy(Wikipedia).

B.DEFINITIONS
In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum(www.investopedia.com).

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services (Webster,2000). The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index; opposite of deflation (www.investorwords.com). Inflation is when the prices of most goods and services continue to creep upward. It is measured by the Consumer Price Index (CPI)(www.about.com).

C.TYPES
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The various types of inflation are listed below: 1. DEMAND PULL INFLATION: Wage inflation is also called as demand-pull or excess demand inflation. This type of inflation occurs when total demand for goods and services in an economy exceeds the supply of the same. When the supply is less, the prices of these goods and services would rise, leading to a situation called as demand-pull inflation. This type of inflation affects the market economy adversely during the wartime. 2. COST PUSH INFLATION: There is increase in the cost of production of goods and services, there is likely to be a forceful increase in the prices of finished goods and services. For instance, a rise in the wages of laborers would raise the unit costs of production and this would lead to rise in prices for the related end product. This type of inflation may or may not occur in conjunction with demand-pull inflation.

3. PRICING POWER INFLATION: Pricing power inflation is more often called as

administered price inflation. This type of inflation occurs when the business houses and industries decide to increase the price of their respective goods and services to increase their profit margins. A point noteworthy is pricing power inflation does not occur at the time of financial crises and economic depression, or when there is a downturn in the economy. This type of inflation is also called as oligopolistic inflation because oligopolies have the power of pricing their goods and services.

4. SECTORAL INFLATION: This is the fourth major type of inflation. The sectoral
inflation takes place when there is an increase in the price of the goods and services produced by a certain sector of industries. For instance, an increase in the cost of crude oil would directly affect all the other sectors, which are directly related to the oil industry.

Thus, the ever-increasing price of fuel has become an important issue related to the economy all over the world. Take the example of aviation industry. When the price of oil increases, the ticket fares would also go up. This would lead to a widespread inflation throughout the economy, even though it had originated in one basic sector. If this situation occurs when there is a recession in the economy, there would be layoffs and it would adversely affect the work force and the economy in turn (www. buzzle.com).

D.EFFECTS
Below the list of the effect of high inflation rate: I. Hoarding (people will try to get rid of cash before it is devalued, by hoarding food and other commodities creating shortages of the hoarded objects). II. Distortion of relative prices (usually the prices of goods go higher, especially the prices of commodities). III. Increased risk - Higher uncertainties (uncertainties in business always exist, but with inflation risks are very high, because of the instability of prices). IV. Existing creditors will be hurt (because the value of the money they will receive from their borrowers later will be lower than the money they gave before). V. Fixed income recipients will be hurt (because while inflation increases, their income doesnt increase, and therefore their income will have less value over time). VI. Lowers national saving (when there is a high inflation, saving money would mean watching your cash decrease in value day after day, so people tend to spend the cash on something else). VII.Illusions of making profits (companies will think they were making profits while in reality theyre losing money if they dont take into consideration the inflation rate
10

when calculating profits). VIII.Causes an increase in tax bracket (people will be taxed a higher percentage if their income increases following an inflation increase). IX. Causes mal-investment (in inflation times, the data given about an investment is often deceptive and unreliable, therefore causing losses in investments X. Causes business cycles (many companies will have to go out of business because of the losses they incurred from inflation and its effects). XI. Currency debasement (which lowers the value of a currency, and sometimes cause a new currency to be born). XII.Rising prices of imports (if the currency is debased, then its purchasing power in the international market is lower)(www.crisistimes.com/inflation).

E.HOW TO MEASURE INFLATION RATE?

1. CONSUMER PRICE INDEX (CPI): Consumer Price Index (CPI) is the main measure of
price changes at the retail level. It measures changes in the cost of buying a representative fixed basket of goods and services and generally indicates inflation rate in the country. The Consumer price index was computed for the first time with 1948-49 as a base for industrial workers in the cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to make CPI more representatives by improving and expanding its scope and coverage in terms of items, category of employees, cities and markets. Accordingly, the CPI series were computed with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. At present, the CPI is being computed with 2000-01 as base year. And according to the studies of CPI, the inflation

11

rate during the fiscal year 2000-2001 was 4.41, 3.54 in 2001-2002 , 3.10 in 2002-2003, 4.57 in 2003-2004, 9.28 in 2004-2005 and 7.92 in 2005-2006, 7.77 in 2006-2007, 8.01 in 2007-2008, 24.43 in 2008-2009 and 2010 CPI is 20.77.

2. SENSITIVE PRICE INDEX (SPI): The Sensitive Price Indicator (SPI) is computed on
weekly basis to assess the price movements of essential commodities at short intervals so as to review the price situation in the country. The SPI is being presented in the Economic Coordination Committee of the Cabinet (ECC). Sensitive price indicator was originally computed with 1969-70 as base which was subsequently switched over to 1975-76, 1980-81 and 1990-91 as base year. Presently, the SPI is being computed with base 2000-2001. And Sensitive Price Indicator (SPI) shows the facts as; 4.84 in 2000-2001, 3.37 in 2001-2002, 3.58 in 2002-2003, 6.83 in 2003-2004, 11.55 in 2004-2005 and 7.02 in 2005-2006 , 10.82 in 2006-2007 ,11.03 in 2007-2008 and 2008-2009 SPI is 30.96.

3. WHOLESALE PRICE INDEX (WPI): The Wholesale Price Index (WPI) is designed to
measure the directional movements of prices for a set of selected items in the primary and wholesale markets. Items covered in the series are those which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi, ex-factory or at an organized Wholesale level. The WPI initially was computed with 1959-60 as base. Since then, continuous efforts have been made to make the WPI more representatives by improving and expending its scope and coverage in terms of commodities, quotations/markets, etc. Accordingly, WPI
12

series were computed with 1969-70, 1975-76,1980-81 and 1990-91 as base years. Presently, the WPI is being computed with 2000-01 as base. The Wholesale Price Index (WPI) tells the story as; 6.21 in 2000-2001, 2.08 in 2001-2002, 5.57 in 2002-2003, 7.91 in 2003-2004, 6.75 in 2004-2005 and 10.10 in 2005-2006 6.94 in 2006-2007, 10.26 in 2007-2008 and 2008-2009 WPI is 27.98.

CHAPTER THREE

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METHODOLOGY

The previous chapters introduced the problem of the study and reviewed the relevant literature. This chapter will set forth the methodology of the study.

A. STRATEGY
The strategy of research was survey.

B .POPULATION AND SAMPLING

The population of the study was comprised of all citizens of North Nazimabad Town, Karachi. All the secondary data related to economic growth of Pakistan. It was about annual reports, economic surveys of Pakistan & budget documents. The content related to inflation rate specially with respect to our topic and data available at Federal Bureau of Statistics and some other relevant sources was also studied .The population was large and diverse .Therefore stratified random sampling design was adopted. The overall sample size of 32 citizens belonging to North Nazimabad Town were selected as a part of sample the principle of stratification was gender and age.

B. RESEARCH INSTRUMENTS

14

A questionnaire comprising of 20 items was designed. The items were drawn from related literature and in consultation with research supervisor. This procedure ensured the content validity of this questionnaire.

C. DATA COLLECTION

The data were collected through personal visits .the reliability of the instrument was ensured through pilot testing.

D.

PLAN OF DATA ANALYSIS

Two types of analytical techniques were used. First, quantitative which involved descriptive statistical procedures. Tables with percentage were used for description of data. The second type of technique used was qualitative analysis of the facts was made ant the results were described in the narrative.

CHAPTER FOUR ANALYSIS OF THE FINDINGS

15

In the previous chapters the problem of the study was stated, the review of the literature was presented, and the methodology of the study was outlined. The present chapter will describe the data analysis produces in details. The findings of the study will be presented in two sections.

Section I:

Composition of the Sample (percentages and graphs)

Section II: Testing of the Major Hypotheses

Section I: COMPOSITION OF THE SAMPLE Table 4.1.1 shows the distribution of sample by gender TABLE 4.1.1 distribution of the sample by gender
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Gender Male Female Total

Frequency (f) 18 14 32

Percentage (%) 56.25 43.75 100

It is cleared that 56.25% of the respondents were male and 43.75% female.

PIE CHART

It is cleared from the pie chart that major share of the sample was comprised of male citizens. Table 4.1.2 shows the distribution of sample by marital status TABLE 4.1.2 distribution of sample by marital status Marital Status Married Unmarried Total Frequency (f) 20 12 32 Percentage (%) 62.5 37.5 100

It is cleared that 62.5% of the respondents were married and 37.5% were unmarried.

STACKED COLUMN

It is cleared from the graph that major share of the sample was comprised of married citizen. Table 4.1.3 shows the distribution of sample by age
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TABLE 4.1.3 distribution of sample by age Age Below 25 years 25 years and above Total Frequency (f) 08 24 32 Percentage (%) 25 75 100

It is cleared that 75% of the respondents were 25 years and above and 25% were below 25 years.

STACKED CYLINDER

It is cleared from the graph that major share of the sample was comprised of 25 years and above age. Table 4.1.4 shows the distribution of sample by income TABLE 4.1.4 distribution of sample by income Income Below 10000 10000 and above Total Frequency (f) 07 25 32 Percentage (%) 21.875 78.125 100

It is cleared that 78.125% of the respondents were income 10000 and above and 21.875% were below 10000 income.

DOUGHNUT
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It is cleared from the doughnut chart that major share of the sample was comprised of 10000 and above income. Section II: TESTING OF THE MAJOR HYPOTHESES

Null Hypothesis 1

There will be no significant difference in the impact of the high inflation rate on the purchasing powder of male and female citizens of North Nazimabad Town, Karachi. Analysis of the Problem

Table 4.2.1 shows the application of Mean (X) for testing the null hypothesis 1. In the sample of 32 respondents, 18 were male and 14 were female. So, N1 =18 for male and N2 =14 for female. S.NO. 1 2 3 4 5 6 7 8 9 10 11 MALE 72 74 62 71 69 66 68 70 72 69 55 FEMALE 59 70 72 70 54 68 66 72 59 52 69
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12 13 14 15 16 17 18 X Mean (X) = X N

65 59 68 68 75 53 69 1205 66.94

75 66 85

937 66.93

Referring to Table 4.2.1, we find that the Mean (X) = 66.94 of male is approximately equal to the Mean (X) = 66.93 of female. Therefore, the null hypothesis is accepted and it is concluded that there is no significant difference in the impact of the high inflation rate on the purchasing powder of male and female citizens of North Nazimabad Town, Karachi.

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Null Hypothesis 2

There will be no significant difference in the impact of the high inflation rate on the purchasing powder of married and unmarried citizens North Nazimabad Town, Karachi. Analysis of the Problem

Table 4.2.2 shows the application of Mean (X) for testing the null hypothesis 2. In the sample of 32 respondents, 20 were married and 12were unmarried. So, N1 = 20 for married and N2 =12 for unmarried .

S.NO. 1 2 3 4 5 6 7 8 9 10 11

MARRIED 72 56 59 66 78 64 78 84 63 69 72

UNMARRIED 56 54 72 69 59 66 72 63 60 58 49
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12 13 14 15 16 17 18 19 20 X Mean (X) = X N

75 69 54 58 66 69 70 75 70 1367 68.35

66

744 62

Referring to Table 4.2.2, we find that the Mean (X) = 68.35 of married is higher than the Mean (X) = 62 of unmarried. Therefore, the null hypothesis is rejected and it is concluded that there is significant difference impact of the high inflation rate on the purchasing powder of married and unmarried citizens of North Nazimabad Town, Karachi.

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Null Hypothesis 3

There will be no significant difference in the impact of the high inflation rate on the standard of living of low income and high income citizens of North Nazimabad Town, Karachi. Analysis of the Problem Table 4.2.3 shows the application of Mean (X) for testing the null hypothesis 3. In the sample of 32 respondents, 07 were below 10000 and 25 were 10000 and above income. So, N1 = 07 for below 10000 and N1 = 25 for more 10000 income.

S.NO 1 2 3 4 5 6 7 8 9 10 11

BELOW 10000 78 71 84 69 64 66 65

10000 & ABOVE 63 52 49 61 53 66 59 65 45 66 71

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12 13 14 15 16 17 18 19 20 21 22 23 24 25 X Mean (X) = X N 497 71

72 68 55 45 75 59 49 66 70 60 54 58 69 67 1517 60.68

Referring to Table 4.2.3, we find that the Mean (X) = 71 of below 10000 income people is higher than the Mean (X) = 60.68 of 10000 and above income people. Therefore, the null hypothesis is rejected and it is concluded that there is significant difference impact of the high inflation rate on the standard of living of low income and high income citizens of North Nazimabad Town, Karachi. .

24

Null Hypothesis 4 There will be no significant difference impact of the high inflation rate of younger and older of citizens of North Nazimabad Town, Karachi. Analysis of the Problem Table 4.2.4 shows the application of Mean (X) for testing the null hypothesis 4. In the sample 32 respondents, 08 were below 25 years aged and 24 were 25 years and above aged. So, N1 = 08 for younger and N2 = 24 for older. S.NO 1 2 3 4 5 6 7 8 9 10 11 BELOW 25 YEARS 56 63 71 76 45 70 59 60 25 YEARS & ABOVE 78 66 55 69 74 52 68 64 70 59 46
25

12 13 14 15 16 17 18 19 2 21 22 23 24 X Mean (X) = X N 500 62.5

49 59 75 85 66 76 74 71 72 55 56 69 63 1571 65.45

Referring to Table 4.2.4, we find that the Mean (X) = 62.5 of below 25years age is lower than the Mean (X) = 65.45 of 25 years and above age. Therefore, the null hypothesis is rejected and it is concluded that there is significant difference impact of the high inflation rate of younger and older citizens of North Nazimabad Town, Karachi.

26

Section II: ITEM-WISE ANALYSIS

Item No # 1: INFLATION REDUCED THE PURCHASING POWER OF MIDDLE INCOME GROUP WITH REFERENCE TO QUALITY PRODUCTS.

Analysis of the Problem 1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05

4) 2 = (fo-fe)2 / fe 5) Decision Rule: 6) Conclusion

STRON GLY AGREE AGREE UNDECID E DISAGR EE STRONGL Y DISAGRE E

Reject Ho if computed 2 9.488 2

Total

fo

12

15

32
27

fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

6.4 5.6 31.36 4.9 4.9

6.4 8.6 73.96 11.556 11.556

6.4 -3.4 11.56 1.806 1.806

6.4 -4.4 19.36 3.025 3.025

6.4 -6.4 40.96 6.4 6.4

32 27.68 7

Conclusion

Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is less than the computed value of 2 = 27.687. Therefore the null hypothesis was rejected. It was found that most of the respondents were agree with the view that inflation rate reduced the purchasing power of middle class group with reference to quality products.

Item No # 2: INFLATION SEVERELY AFFECTS THE MIDDLE INCOME GROUP THAN HIGH INCOME GROUP.

Analysis of the Problem 1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05
28

4) 2 = (fo-fe)2 / fe 5) Decision Rule : 6) Conclusion Reject Ho if computed 2 9.488 2

STRON GLY AGREE

AGREE

UNDECID E

DISAGR EE

STRONGL Y DISAGRE E

Total

fo fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

12 6.4 5.6 31.36 4.9 4.9

10 6.4 3.6 12.96 2.025 2.025

5 6.4 -1.4 1.96 0.306 0.306

3 6.4 -3.4 11.56 1.806 1.806

2 6.4 -4.4 19.36 3.025 3.025

32 32 12.06 2

Conclusion

Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is less than the computed value of 2 =12.062. Therefore the null hypothesis was rejected. It was found that most

29

of the respondents were agree with the view that inflation rate severely affect middle income group than high income group.

Item No # 3: INFLATION GREATLY INFLUENCES THE SMALL BUSINESS.

Analysis of the Problem 1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05

4) 2 = (fo-fe)2 / fe 5) Decision Rule: 6) Conclusion Reject Ho if computed 2 9.488 2

STRON GLY AGREE

AGREE

UNDECID E

DISAGR EE

STRONGL Y DISAGRE E

Total

fo

32
30

fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

6.4 2.6 6.76 1.056 1.056

6.4 -0.4 0.16 0.025 0.025

6.4 1.6 2.56 0.4 0.4

6.4 -1.4 1.96 0.306 0.306

6.4 -2.4 5.76 0.9 0.9

32 2.687

Conclusion

Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is more than the computed value of 2 =2.687. Therefore the null hypothesis was not rejected. It was found that most of the respondents were disagree with the view that inflation greatly influences the small business.

Item No # 4: MIDDLE INCOME GROUP HAS LOW SAVING DUE TO INFLATION.

Analysis of the Problem 1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05

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4) 2 = (fo-fe)2 / fe 5) Decision Rule: 6) Conclusion Reject Ho if computed 2 9.488 2

STRON GLY AGREE

AGREE

UNDECID E

DISAGR EE

STRONGL Y DISAGRE E

Total

fo fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

11 6.4 4.6 21.16 3.306 3.306

12 6.4 5.4 31.36 4.9 4.9

4 6.4 -2.4 5.76 0.9 0.9

2 6.4 -4.4 19.36 3.0625 3.0625

3 6.4 -3.4 11.56 1.759 1.759

32 32 13.92 7

Conclusion

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Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is less than the computed value of 2 =13.927. Therefore the null hypothesis was rejected. It was found that most of the respondents were agree with the view that middle income group has low saving due to inflation.

Item No # 5: HIGH INFLATION RATE CAUSE OF POLICTICAL INSTABILITY.

Analysis of the Problem 1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05

4) 2 = (fo-fe)2 / fe 5) Decision Rule: 6) Conclusion Reject Ho if computed 2 9.488 2

33

STRON GLY AGREE

AGREE

UNDECID E

DISAGR EE

STRONGL Y DISAGRE E

Total

fo fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

10 6.4 3.6 12.96 2.025 2.025

6 6.4 -0.4 0.16 0.025 0.025

4 6.4 -2.4 5.76 0.9 0.9

10 6.4 3.6 12.96 2.025 2.025

2 6.4 -4.4 19.36 3.025 3.025

32 32 1.25

Conclusion

Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is more than the computed value of 2 =1.25. Therefore the null hypothesis was accepted. It was found that most of the respondents were disagree with the view that high inflation rate cause of political instability.

Item No # 6: HIGH INFLATION RATE EFFECTS COST OF PRODUCATION.

Analysis of the Problem

34

1) Ho: f1=f2=f3==f4 =f5

2) H1: f1f2f3f4f5
3) : 0.05

4) 2 = (fo-fe)2 / fe 5) Decision Rule: 6) Conclusion Reject Ho if computed 2 9.488 2

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STRON GLY AGREE

AGREE

UNDECID E

DISAGR EE

STRONGL Y DISAGRE E

Total

fo fe fo-fe (fo-fe)2 (fo-fe)2 / fe 2= (fofe)2/ fe

13 6.4 6.6 43.56 6.806 6.806

10 6.4 3.6 12.96 2.025 2.025

0 6.4 -6.4 40.96 6.4 6.4

5 6.4 -1.4 1.96 0.306 0.306

4 6.4 -2.4 5.76 0.9 0.9

32 32 2.568

Conclusion

Referring to table of 2 the tabulated value of 2 = 9.488 at = 0.05, df = 4 is more than the computed value of 2 =2.568. Therefore the null hypothesis was not rejected. It was found that most of the respondents were disagree with the view that high inflation rate effects cost of production.

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CHAPTER FIVE

SUMMARY, FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

In the previous chapters, the problem of the study was introduced; the related literature was reviewed, the methodology of the study was described and the findings of the study were set out. In this chapter will present a summary of the study, findings, conclusions and the recommendations.

A. SUMMARY

The basic purpose of the study was to analyze the impact of the high inflation rate on the purchasing power of middle income group of North Nazimabad Town, Karachi. The scope of the study was limited to the middle income group population of North Nazimabad Town, Karachi. The following ten hypotheses were formulated for the study.
1. There will be no significant difference in the impact of the high inflation rate on the

purchasing power of male and female citizens of North Nazimabad Town, Karachi.
2. There will be no significant difference in the impact of the high inflation rate on the

purchasing power of married and unmarried citizens of North Nazimabad Town, Karachi.
3. There will be no significant difference in the impact of the high inflation rate on the

standard of living of low income and high income citizens of North Nazimabad Town, Karachi.

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4. There will be no significant difference in the impact of the high inflation rate of younger

and older citizens of North Nazimabad Town, Karachi.

5. The null hypothesis was rejected, it was found that most of the respondents were agree

with the view that inflation rate reduced the purchasing power of middle class group with reference to quality products .
6. The null hypothesis was rejected; it was found that most of the respondents were

agree with the view that inflation rate severely affect middle income group than high income group.
7. The null hypothesis was not rejected; it was found that most of the respondents

were disagree with the view that inflation greatly influences the small business.
8. The null hypothesis was rejected; it was found that most of the respondents were

agree with the view that middle income group has low saving due to inflation.
9. The null hypothesis was accepted; it was found that most of the respondents were

disagree with the view that high inflation rate cause of political instability.
10. The null hypothesis was not rejected; it was found that most of the respondents were

disagree with the view that high inflation rate effects cost of production. The strategy of research was survey. The population of the study consisted of all citizens of North Nazimabad Town Karachi; the total sample size was 32 people. One research instrument, a questionnaire were developed for the study. The questionnaire consisted of 20 statements. Several measures were taken to ensure the validity and reliability of the research instrument. First, the statements were drawn from a detailed review of the relevant literature and consultation with the experts to ensure content validity. Second, the research instrument was administered personally so as to ensure hundred percent rate of return. Third, the data collected were thoroughly edited. Quantitative technique was used in analyzing data. The major hypotheses were tested through Mean (X).

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A. FINDINGS

1. No significant difference in the impact of the high inflation rate on the purchasing power

of male and female citizens of North Nazimabad Town, Karachi was found.
2. The married citizens were found to more affected by inflation than unmarried citizens of North Nazimabad Town, Karachi . 3. The less income people were found to be more affected by inflation than the more

income citizens of North Nazimabad Town, Karachi .

4. The older citizens were found to be more affected by inflation than the younger citizens

of North Nazimabad Town, Karachi .

5. It was found that most of the respondents were agree with the view that inflation rate

reduced the purchasing power of middle class group with reference to quality products.
6. It was found that most of the respondents were agree with the view that inflation rate

severely affect middle income group than high income group.

7. It was found that most of the respondents were disagree with the view that inflation

greatly influences the small business.

8. It was found that most of the respondents were agree with the view that middle income

group has low saving due to inflation.

9. It was found that most of the respondents were disagree with the view that high inflation

rate cause of political instability.

10.It was found that most of the respondents were disagree with the view that high inflation

rate effects cost of production.

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A. CONCLUSIONS

The findings of this study may be explained in view of the prevailing situation. First, there is no difference in the impact of inflation on the purchasing power of male and female citizens of North Nazimabad Town, Karachi. Second, the married citizens were found to be more affected than the unmarried citizens of North Nazimabad Town, Karachi. This may be due to the fact that the married people have to shoulder more household responsibilities than the unmarried people. Third, the less income people were found to be more affected than the more income people of Karachi. Fourth, the older people were found to be more affected by the inflation than the younger people of Karachi. The study has made a significant contribution in the identification of the 20 statements of the construct of high inflation rate on the purchasing power of middle income group of North Nazimabad Town, Karachi.

B. RECOMMENDATIONS
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Inflation is one of the core problem affecting purchasing power .Taking a single measure can not control it. However, if monetary and fiscal measures are wisely coordinated, it can greatly help in controlling the continuous process of rising prices .The government should have a strict watch on the prices of essential commodities in the country.It should take immediate steps in changing the import and export duties and maintain the availability of goods is reasonable prices. Domestic production should be encouraged instead of import .Investment should be given preference in consumer goods instead of luxuries. should plan the process by which we can have the maximum production at lower cost at home, instead of formulating plans to import the items. Reassess the complete system of Direct and indirect Taxes .Domestic productions at less cost of production will not only make the availability of goods much easier but Aggregate Supply will also increase, and domestic industry will get developed. Unfortunately, in Pakistan, has never undergone such planning process to solve inflation problem . Government should need proper strategic planning to solve high inflation rate. Trading Corporation of Pakistan (TCP)

REFERENCES
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Akhtar , Qurratulain (October 29,2006), Economic Survey of Pakistan 2005-2006. Federal Bureau of Statistics. Economic Survey of Pakistan 2005-2006. Economic Theory (K.K.Dewett,P.A.Samuelson,Pakistan). www.investorwords.com Journal of the Chief Economist of WB(The Writer). Razaq, Asma (May 28, 2011),Economic Survey to unveil 14.1 percent inflation ,Business Recorder. Statistical Supplement of Economic Survey 2009-10 CIA World Factbook 2011. Wikipedia www.investopedia.com www.tradingeconomics.com/pakistan/inflation www.dictionary.com www.investopedia.com www.about.com www. buzzle.com www.crisistimes.com/inflation

APPENDIX # 1
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DADA BHOY INSTITUTE OF HIGHER EDUCATION

IMPACT OF THE HIGH INFLATION RATE ON THE PURCHASING POWER OF THE MIDDLE INCOME GROUP OF NORTH NAZIMABAD TOWN, KARACHI
SECTION I: PARTICULARS ABOUT THE RESPONDENTS. DIRECTIONS: PLEASE ANSWER ALL THE QUESTIONS. 1.1- AGE
BELOW 25 YEARS 1.2- GENDER MALE 1.3- MARITAL STATUS MARRIED 1.4- QULIFICATION? UNMARRIED FEMALE 25 TO 35 YEARS 36 TO 45 YEARS ABOVE 46 YEARS

1.5- NAME OF THE ORGANIZATION WHER YOU WORK?

1.6- HOUSE HOLD INCOME (IN RUPEES)? LESS THAN 10,000 10,000 TO 25,000 25,000 TO 35,000 35,000 AND ABOVE

SECTION II: MEASUREMENT SCALE

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LISTED BELOW ARE SEVERAL STATEMENTS AGAINST EACH. THERE IS A FIVE POINTSCALE: STRONGLY AGREE (SA), AGREE (A), UNDECIDED (UD), DISAGREE (DA), STRONGLY DISAGREE (SD), PLEASE PLACE A CHECK MARK () ON THE POINT TO WHICH YOU AGREE. FACTORS OF HIGH INFLATION RATE SA A UD DA SD

2.1 INFLATION REDUCED THE PURCHASEING POWER OF MIDDLE

INCOME GROUP WITH REFERENCE TO QUALITY PRODUCTS.

2.2 INFLATION SEVERLY AFFECT THE MIDDLE INCOME GROUP THAN HIGH INCOME GROUP. 2.3 INFLATION GREATLY INFLUENCES THE SMALL BUSINESS. 2.4 MIDDLE INCOME GROUP HAS LOW SAVING DUE TO INFLATION. 2.5 HIGH INFLATION RATE CAUSE OF POLICTICAL INSTABILITY. 2.6 HIGH INFLATION RATE EFFECTS COST OF PRODUCATION. 2.7 HIGH INFLATION RATE DECREASES THE VALUE OF MONEY. 2.8 HIGH INFLATION RATE DECREASES THE ECONOMY GROWTH. 2.9 HIGH INFLATION RATE DECREASES THE NATIONAL SAVINGS. 2.10 HIGH INFLATION RATE CHANGES THE STANDARD OF LIVING. 2.11 HIGH INFLATION RATE DECREASES THE PURCHASING POWER. 2.12 HIGH INFLATION RATE CAUSE OF POVERTY. 2.13 HIGH INFLATION RATE CAUSE OF HIGHER DUTIES AND

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INDIRECT TAXES. 2.14 HIGH INFLATION RATE CAUSE OF LOW FOREIGN INVESTMENT. 2.15 HIGH INFLATION RATE CAUSE LESS RETURN OF INVESTMENT. 2.16 INFLATION IS REFLECTED THROUGH HIGH PRICES. 2.17 HIGH INTEREST AND LOW OUTPUT ARE MAIN CAUSES OF INFLATION. 2.18 INFLATION PRESSURES RISES WITH HIGH COMMODITY PRICES. 2.15 222 2.19 INFLATION IS ONE OF THE CORE PROBLEM AFFECTING PURCH PURCHASING POWER.

2.20 INFLATION HIGHLY AFFECTED OF MARRIED CITIZENS MORE A THAN UNMARRIED CITIZENS.

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