THE DETERMINANTS OF INFLATION AND ITS IMPACT ON ECONOMIC GROWTH: A CASE STUDY OF PAKISTAN (2002-2010)

Attempt is made to identify the determinants of fresh inflation in Pakistan. Specific objectives are, to find out the relationship between inflation, Interest Rate and Money Supply; analyze policies of the State Bank of Pakistan and the tools it is using to control inflation. Literature Review shows that the expansionary economic policies of the government and of the central bank (State Bank of Pakistan ? SBP), which on one hand resulted in remarkable economic performance, but on the other hand stirred a rise in the Consumer Price Index (CPI).Some experts make fiscal or monetary policies responsible for, while others blamed it as an imported inflation, administered prices or mismanagement and weak control of the government. Non-contrived convenient random sampling Method was used in survey to collect data from State Bank of Pakistan, National Bank of Pakistan and Statistical and planning division of Pakistan. An econometric framework was used to focuses on the detection of the main determinants of recent inflation trends. The analytical result indicated by applying Regression model method and SPSS tool on collected data from the July 2002 to Feb 2010, suggest that in the long-run inflation is not only related to Interest Rate but also with supply of money. Hence, the findings imply that the Interest rate has a greater impact on the inflation in Pakistan.