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158 billion on account of collection of taxes on petroleum products during the first eight months of current fiscal year, which was fuelling cost push inflation.
The government can adopt expansionary fiscal and monetary policies, which may cause demand pull inflation; simultaneously it has the power to impose indirect taxes or increase tax rate that may result in cost push inflation and finally it can generate "price/wage spiral" which trigger a process in which workers trying to keep their wages up with rise in prices and employers passing higher costs on to consumers.
Low rate of return on saving instruments together with average double digit inflation in the country reduce supply of credit in loanable funds market and whatever meagre credit available for private sector, in such a grave environment when the government also demand for credit, the rate of lending surges and thus whatever credit remain for private sector goes to in producing output which demand is relatively inelastic consequently cost push inflation spiralled and remaining economic sectors recessed.
He further stated that tariff reduction unless coupled with strategic planning would lead to cost push inflation.