A QUALITATIVE

RESEARCH
SUBMITTED BY; AAMIR KHAN (M-29-2011),

TOPIC: WHAT ARE AFFECTS OF INFLATION ON BUYING BEHAVIOR OF PAKISTANI PEOPLE

SUBMITTED TO: RESPECTED SIR JAHANVISH KARIM (An ideal)

SUBMITION DATE: 02/06/2013

SAYED FAREED AHMED SHAH (M-X-2011) NASEEBULLAH (M-X-2011), ABDUL WASEY (M-X-2011)

ABSTRACT

his study investigates the effects of inflation on buying behavior of Pakistani people, the data used in the

study where collected from period (1st January-15 may 2013), to find out is really inflation effects buying behavior of people, is buying behavior diverted , fluctuates , increases or not? To find out this relationship we choose open ended interview to determine opinions of people about inflation and their buying behavior.

INTRODUCTION

ecently we observed that our average buying power is collapsing, and by the help of our honest teacher, we took decision to

find out the effects of inflation on buying behavior of Pakistani people. So we selected below topic.

Any RESEARCH is the way to find out the problem Or to find out something new. And to find this relationship between inflation and buying behavior we have followed the steps of RESEARCH in proper manner, first of all we introduce some basic elements of our research.

Inflation

nflation is simply a rise in the general Price level of goods and services in an economy over a period of time. When the

price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also erosion in the purchasing power of money. Inflation is a rise in general prices, inflation affects all people and all sectors in an economy. It has both good and bad effects, some time it has good effects. Single digit inflation is beneficial for an economy while double digit inflation is not good for an economy. In single digit inflation there will be an increase in employment slowly, but in double digit inflation unemployment decreases and inflation increases 200% to 300%, which is not acceptable by the people.

What can cause inflation?

emand pull = demand exceeds supply at prevailing prices. In demand pull inflation people demands for more goods and service but potentials of

economy cannot complete their demands overall and available resources or goods will be scarce. Due to this scarcity prices will increases which called inflation or demand pull inflation. Cost push = a shortage of raw materials causes their price to rise; these force up the costs of our producers. In cost push inflation labors demand to increase in wages due to increase in wages production will decrease and due to decrease in production tends to decrease in supply of products, which become a shortage of products in the market and price will rise consequently. Rising import prices can similarly push up our manufacturing costs, as can wage-push inflation. Hybrid inflation = a mixture of the first two. Either starts the process off, then the other jumps in; they may then alternate in an on-going process. Government policy can do it, forcing us up the Philips Curve (more later); or the government might increase spending before elections to put more people into work and gain support (this is really a special form of demand pull). We will investigate the problem through our aggregate supply and demand model later.

Some Problems with inflation

Those on fixed incomes lose out (pensioners, students). This also changes income distribution. Those on sticky incomes lose (often public service workers, as it is not easy to increase their wages).If inflation is too high, it puts entrepreneurs and business people off, so they will not invest as much. Less investment now means slower growth in future.

Benefits of inflation
Moderate inflation can encourage entrepreneurs and business to take risks and invest, leading to a higher growth rate and less unemployment. We are used to inflation and seem to feel comfortable with it.

RESEARCH OBJECTIVES
>To find out relationship between inflation and buying behavior >To find fluctuation of buying behavior >To give an up to date information about inflation and its effects on different sectors >helps to find out which sector is going in depict > helps to find out problems in different sectors and gives suggestions to fulfill the space

LITRATURE REVIEW

Rana and Abid (2010) analyze the determinants of inflation in Pakistan over the period 1971 to 2006 using time series data. Regression technique has been used while CPI, GDP deflator, budget deficit and annual interest rate are considered as variable. Result shows that budget deficit doesnt affect inflation in the long run. Seymour (2011) analyzes the determinants of inflation rate for the long-run and short-run inflation in 10 CIS transition economies countries over the period 1996 2008 using time series data. Regression technique has been used. Inflation, wages, money supply, exchange rate are consider variables. Result shows that increase in exchange rate and wage growth rate not cause of inflation but monetary policy effects inflation in short run and vice versa in long run. Heba (2010) analyzes the inflation dynamics in Egypt. Co integration technique has been used. Consumer price index, nominal exchange rate, average annual interest rate, broad money or domestic liquidity, percentage (%) to trade deficit of GDP are considered as variables. Result shows that rate of growth of money supply highly influence in inflation in Egypt. Interest rate also influence in inflation. Omoke and Oruta (2010) analyze the long term relationship between budget deficit, money supply and inflation in Nigeria using time series data for the period 1970 to 2005. Co integration and granger causality test has been used. Inflation, money supply and budget deficit are the variables. Result shows that money supply is one of the cause of inflation and a close relationship between them. The relationship between inflation and budget deficit is bi lateral. Result suggests that sufficient monetary policy should be devised towards balance the role of money supply plays to both Inflation and budget deficit.

Rameez et all (2010) analyze the relationship between inflation, exchange rates and interest rates for the period 1994 to 2009 in UK and Pakistan using time series data. Variables are the interest rate differentials, exchange rate and inflation differentials. Result shows that inflation rate of UK and Pakistan is the positive relation while the negative relation between the interest and exchange rate.

Klarizze (2009) investigate the validity of Philip curve for the 4 Asian countries which is Thailand, Indonesia, Malaysia and Philippines using time series data from 1980 to 2005. Regression technique Has been used. Inflation, unemployment, interest rate are considered as variables . result shows that For the 4 Asian countries significant or not there seems to be no stable one to one tradeoff between unemployment and inflation. This research suggest a lag of interest rates there may be possibility that the previous years monetary policy regarding interest rates might have a significant effect on the inflation rate. Giri and Ramprasad (2009) establish a link between inflation uncertainty and interest rates for five Inflation-targeting countries (Canada, Finland, Spain, Sweden and UK) over the period 1973 to 2007 using time series data. The study uses time-varying parameter model with a Generalized Autoregressive Condition Heteroskedasti city (GARCH) specification. Variables are interest rates, economic growth and inflation. Result shows that a positive relationship was found between the Interest rates and expected inflation. This research suggests that monetary authority has successfully Eliminated uncertainties and consequently controlled the level of inflation.

Ramon and Jorge (2008) analyze the short run price level with respect to foreign and domestic Factors in Mexico for the period 1996 to 2003 using time series data. Regression technique has been Used. Fluctuation between the price level, wages and exchange rate are considered as variables. They also analyze the relationship of exchange rate on price level on short run. Result shows that Changes in wages and exchange rate main cause of the behavior of the price level. Diego et all (2008) identify the causes of inflation in Ecuador VAR model has been used. Inflation rate, international prices, exchange rate, public policy variables, transportation cost, weather and political events are considered as variables. Result shows that main reasons of inflation are international prices, exchange rates and public policy.

James (2007) analyzes the relationship between inflation and inflation uncertainty for three (3) Caribbean countries (Bahamas, Barbados and Jamaica) over the period 1972 to 2007 for Bahamas, 1965 to 2007 for Barbados and 1957 to 2007 for Jamaica using time series data. The study uses ARMa GARCH models for estimation inflation uncertainty along with Granger-Causality test to assume the relationship between inflation and inflation uncertainty. Granger causality tests indicates that an increase an inflation has been a positive impact of inflation uncertainty for each country.

Mehdi et all (2007) analyze the inflation- targeting the exchange rate policy for an oil producing country (Iran) over the period 1970 to 2005 using time series data. ARDL co integration technique has been used. Money supply, exchange rate and oil revenue are considered as variables. Results show that exchange rate will lead to increase the inflation. Results also shows that oil revenue will increase inflation in short term while decrease in long term.

METHODS;
INTERVIEW
To find out this research we prefer interviews as compare to questionnaires, because interviews help us to make more transparent something discussed

NUMEBER OF INTERVIEWS
For our research we took interviews of 12 people from different demographic portions, such as, gender, status, business, students and others.

INTERVIEW METHOD
We selected convenience interview process to find out this relationship, because all people are directly or indirectly affected

INTERVIEW SCEDUAL
In our interview we asked following questions

Q#1: is your income enough for you all over the month? Q#2: in your opinion is governments current taxation policy is appropriate or not? Q#3: How much you earn and how spend? Q#4: what is your thinking when you are going to purchasing luxury goods?

Q#5: Do you prefer saving of money in your life? Q#6: If we compare todays inflation rate with past ten years inflation, so how you observe that? Q#7: If we compare business situation of Pakistan? Q#8: youre thinking when you are going to market to buy something? Q#9: your behavior when you are paying utility bills like gas, electricity etc? Q#10: Final goods prices are appropriate do you agree?

Q#11: if you need to go Lahore according to your pocket situation which facility do you prefer by Air, by Train, by Road?

Q#12: if inflation is increasing why majority of people have luxurious cars etc?

RESULTS
Q#1: is your income enough for you all over the month? ANSWER: Inflation increasing Goods are expensive Limited expenditures Managing in difficult situation Living standard collapse

Q#2: in your opinion is governments current taxation policy is appropriate or not? Improper taxes Not satisfied with these taxes Taxes are our social responsibility Majority is not paying taxes

Q#3: How much you earn and how spend? Save some amount and spend other remaining Income is not enough in this inflation Spend on basic necessities Difficultly maintaining

Q#4: what is your thinking when you are going to purchasing luxury goods? I am brand conscious It is one time purchase No purchase of luxury goods One luxury good replaces all other desires Today all goods are luxury

Q#5: Do you prefer saving of money in your life? Not so much little bit Saving is necessary and I am saving Saving for uncertain situation In this inflationary situation saving is not possible

Q#6: If we compare todays inflation rate with past ten years inflation, so how you observe that? Too much inflation now Double digit inflation Foreign investors are not encouraged

 Law and order situation is bad Hyper inflation Q#7: If we compare business situation of Pakistan with foreign countries? Bad situation here Uncertainty Law and order situation is bad Countrys economy is going in depict

Q#8: youre thinking when you are going to market to buy something? I think normal Make shopping budget before going market Worried about price increasing Purchase very care fully

Q#9: your behavior when you are paying utility bills like gas, electricity etc? Feel angry Half of the salary goes to paying fees Education and health should be free Worried about fees and bills

Q#10: Final goods prices are appropriate do you agree? Prices are too much higher We are just surviving Limited buying power Some goods have high prices and some have normal prices

Q#11: if you need to go Lahore according to your pocket situation which facility do you prefer by Air, by Train, by Road? By road By Air(female) By Train

Q#12: if inflation is increasing why majority of people have luxurious cars etc? Show off No control of government Un equal distribution of wealth People using best cars but not giving taxes

Results Of Research By the Help Of Chart.

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Effects of inflation on different elements Effects of uncertainity Saving of income investment from their income students commercials officers house holds

5. Conclusion and Recommendations This research fruitfully unfolds the literature and answers many questions which were previously not answer especially for the Pakistani aspect. This study examines the affects of inflation in Pakistan on a monthly data for the period of 1st Jan 2013 to 15 may 2013. Open ended interview technique is used to analyze the relationship between (Inflation) and (buying behavior). It is concluded inflation have significant impact on the buying behavior. It is concludes that gross domestic production is having negative relationship with inflation on the other hand exchange rate, interest rate, fiscal deficit and unemployment are having positive relationship with inflation. It concluded salaries of government employees are also increase by 50 to 110% but not parallel to inflation, inflation increased double or triple of salaries. In conclusion, policies to control inflation are directed towards the causes of inflation rise for example there is Wage inflation, Food inflation among others. In reality the inflation is often multi causal. Generally inflation should be controlled, as both deflation and hyperinflation causes instability in the economy. To enhance economic planning authorities in developing countries should set an inflation range, in which they expect to operate in, a specific inflation figure has been hard to attain as policy reversals are high. It is recommended that government spending should be controlled in order to control inflation. It involves increase in tax levels and reducing government spending. Government should decrease imports and increase the exports. The government should reduce borrowing. The more the government borrows, the more money supply increases and hence inflation increases. In addition to better explain dynamics, stock prices, energy/petroleum prices, and other functional forms can be utilized in future studies.

AAMIR KHAN BADINI University of Baluchistan Quetta Aamir_mba11@yahoo.com