Cost Push Inflation Due to Increase in Oil Price

ABSTRACT

This study discussed the effect of higher oil prices on the Pakistan’s economy during 1990 to 2010. Pakistan is not oil producing quite oil-importing country. An increase in oil price is the cause of inflation; increase GDP which badly affects the unemployment. The increase in oil price has further effect the daily consumption pattern of households badly which leads to inflation. This study analyzes that; the change in real crude oil price effects the inflation positively and that higher inflation leads a decrease in the GDP. Policy measure has been suggested to prevent form high oil prices.

Key words:

Oil Prices, Inflation, Economic Growth & Unemployment

CHAPTER # 1

INTRODUCTION:

Industrialization in twentieth century; crude oil and its prices became key indicators of economic activity. Due to economic development and growth energy demand and supply increased dramatically.

At the moment, the importance of crude oil is the major component of energy requirement and still cannot be avoided having the alternate forms of energy (such as, gas, water, wind, solar and nuclear power). The importance of crude oil and its prices cause to impact almost in all sector of the economy and affects social life and welfare of the general public. Generally, the instability of oil price is a hot issue at this juncture and making the people worried because that impacts on budget individually and collectively, now a time electronic and print means focus on the oil price volatility and debate on all aspect of the subject. Policy makers & Economists are of the opinion that there is a significant correlation among the macroeconomic variables, economic progression and improvement of the country and oil price volatility. (Suleiman, 2010)

In Pakistan, the justification for this increase is given by Oil and Gas Regulatory Authority (OGRA) on several grounds. Enormous increase in world oil expense shifted the burden to the consumers as government is already running severe losses and equally shifted this burden to family units. Also consumption of fuel oil, diesel oil and energy products at household level also increase. (Adiqa Kiani, 2011)

Such a great fluxions in the oil prices are mainly because of demand and supply of the oil. The basic reason behind the oil price shock is the tremendous increase in the use of crude oil. The global demand for oil increases because of the strong performance of the some Asian countries.

Statement of Problem:

This research is focuses on the effects of oil prices shock on inflation & GDP. Efforts have been done in order to decrease the rate of inflation stable the