Evaluating the Interplay between Inflation and Socioeconomic Variables: Implications for Household Consumption and Economic Stability in Pakistan

Abstract

This study examines the socioeconomic effects of inflation on family spending patterns and community purchasing power in Pakistan from 1990 to 2023. Stationarity tests reveal that key economic variables are integrated of order one (I(1)), while the GDP deflator inflation rate remains stationary at level (I(0)). The Bounds test confirms a long-term equilibrium relationship among these variables. In the short term, increases in final consumption expenditure, access to clean cooking technology, and consumer price inflation negatively influence the GDP deflator inflation rate, with these effects persisting over the long term. Diagnostic tests highlight issues of serial correlation, suggesting that economic shocks can have lasting impacts. These findings emphasize the need for robust policy interventions to stabilize consumption patterns, enhance household purchasing power, and curb inflation. Comprehensive, long-term measures are essential to promote economic stability, improve living standards, and mitigate the adverse social impacts of inflation in Pakistan.