Impacts of inflation in lower

middle-class students of
Karachi university
F U N D A M E N TA L S O F S O C I O L O G Y

DR. ZAHEER ALI

TA B L E O F C O N T E N T S

ABSTRACT………………………………………………………………………

INTRODUCTION………………………………………………………………….

L I T E R AT U R E R E V I E W … … … … … … … … … … … … … … … … … … … … … … …

METHODOLOGY………………………………………………………………...

F I N D I N G S A N D A N A LY S I S … … .
…………………………………………............

CONCLUSION ……………………………………………………………….....

REFERENCES …………………………………………………………………..

APPENDIX…………………………………………………………………….
Abstract:

This research inquires into the sight of high price tags and their impact on consumer behavior
(students: IBA students and KU students) and market dynamics. By employing a versatile
approach that encloses economics, psychology, and marketing, this study looks over the
complex interplay between perceived value, price elasticity, and consumer preferences.
Through a series of factual analyses and comprehensive case studies, the research uncovers
the factors that contribute to the acceptance or rejection of premium price points, shedding
light on the underlying mechanisms that govern consumer willingness to pay for goods and
services. The findings not only provide valuable understandings for businesses attempts to
optimize pricing strategies, but also offer a deeper understanding of consumer decision-
making processes in the context of high-cost products, ultimately advancing the broader
discourse on pricing dynamics within present day markets

Key words: high-cost products, consumer decision-making, high price tags, KU and IBA
students.

Introduction
Inflation is similar to a hidden approach that slowly raises prices. It's similar to when you
save money for a toy and then find that the price has increased and you need to buy more. As
a result, you can purchase less with the same amount of money. Lower and middle classes are
vulnerable to inflation, these classes saves money from their monthly income or salary but
inflation disturbs the saving as well because all the income or money is spent on the daily
consuming products, the continuous rise in prices of products and services lowers the buying
and purchasing power (Kaplan & Schulhofer-Wohl, 2017). In Pakistan the highest inflation
was recorded in the mid 1970’s. Devaluation of money and national disaster also played a
huge role in inflation. The increase in inflation has badly affected all the societies and has
become a huge problem for Pakistan. Rise in food, fuel and oil prices has also played a role in
inflation (Members et al., 2022) (Kim, 2023)Numerous factors can lead to inflation. One of
the primary causes is that as time goes on, individuals become wealthier and companies seek
to increase their revenue as well. They know people are willing to pay a little bit extra, so
they frequently increase the prices of the goods they sell. Middle-class students struggle to
maintain a social life while also trying to pay for tuition and other expenses. From a pizza
slice to a bus ticket, everything seems to be slightly more expensive due to an unseen force.
This can put an inconvenience on our finances and cause us a lot of headaches when making
decisions. Imagine having to decide not to buy that extra cup of coffee or having to spend less
on leisure activities because the cost of movie tickets has increased. Our ability to save for
the future is also impacted by inflation, as well as the decisions we make and the way we
spend our money. In order to comprehend how middle-class student’s deal with this
deceptive price increase, this study delves deeply into their daily lives. We're investigating
the individual narratives and experiences rather than merely focusing on data and
percentages. Do students who are struggling make creative use of their budgets, take on part-
time jobs, or look for support from family members? These are the narratives we hope to
find. We can gain a better understanding of the financial difficulties middle-class students
encounter and the methods of coping they employ to get through these agitated economic
times by shedding light on how inflation impacts them.

In today's world, where consumers play a big role, the high prices of products and services
are a major worry for people in many areas. One group that feels the impact of these high
prices strongly is students. The increasing expenses related to education, along with the rising
costs of living, put a lot of financial pressure on students who are trying to achieve their
academic goals. This research aims to look into the main reasons and various effects of high
price tags on products, as well as the challenges students face in getting these essential items.
As(Mrozowski, 2011)., says, "Being a student on a tight budget is never easy, and record
price increases are making it more difficult to make ends meet. "In a world where customers
are significant contributors, expensive prices for goods and services are a major concern for
many individuals. Students are one group that is severely impacted by these high rates.
Students who are attempting to meet their academic goals face significant financial strain due
to the rising prices of living and education-related fees. This study attempts to investigate the
primary causes and diverse consequences of expensive product labels, together with the
difficulty’s students encounter in obtaining these necessary supplies. "Being a student on a
tight budget is never easy, and record price increases are making it more difficult to make
ends meet," notes (Mrozowski, 2011). An important term in economics, inflation is the
gradual rise in the average cost of goods and services over time. It's a worldwide
phenomenon that has an impact on almost every aspect of the economy, including company
and central bank plans, government policies, and the lives of individuals. Policymakers,
economists, and regular consumers should all be concerned about inflation because it is both
a cause of and a consequence of economic developments.

This introduction looks at the various ways that inflation can affect the local and global
economies, as well as its complicated sources and effects. Things getting more expensive is
known as inflation, and it's an issue that people have discussed for a very long time. You
have to know its origins in order to comprehend it. Prices rise for a few reasons, according to
economists. One explanation is that prices typically rise when large sums of money are made.
The Quantity Theory of Money is the theory upon which this is founded. Another explanation
is that prices go up when people want to buy a lot of goods but there aren't enough available.
We refer to this as demand-pull inflation. In addition, there is cost-push inflation, which
occurs when production costs rise due to rising prices for inputs like oil. Middle-class
students and their families are affected by inflation in a number of ways. Students may
require additional funds to cover their educational expenses because their money doesn't go
as far as it formerly did. It is possible for families that save money to see a decline in value
over time. In order to maintain affordability, schools and other educational institutions must
also think about how much to charge for tuition and other expenses. Financial aid decisions,
school management practices, and investments in education can all be impacted by inflation.
Literature Review
(Fischer & Huizinga, 1982) analysed the relative probabilities of mentioning inflation and
unemployment as the most serious problem in the United States from 1939 to 1978. They
found that inflation was consistently cited more frequently than unemployment, except
during recessions. They also found a positive association between income and the
probability of mentioning inflation as a serious problem. Additionally, they found little
relationship between the level of education and inflation aversion, with their education
variable differentiating only between high school education and above.(Åslund, Boone,
Johnson, Fischer, & Ickes, 1996)) later found a surprisingly weak correlation using the same
survey data. Similarly, (Rose, 1997)found no association between the standard of living and
inflation aversion relative to unemployment aversion in a sample of polling data from ex-
Communist countries. (Rose, 1997) also found little association among transition countries
between actual inflation and inflation aversion.

(Shiller, 2000)conducted a questionnaire survey of 677 people in the United States,

Germany, and Brazil, exploring why people dislike inflation. He found that people perceived
inflation as reducing their standard of living. In the U.S. sample, when asked about their
biggest concern regarding inflation, 77 percent of the sample chose the response "inflation
hurts my real buying power," while only 7 percent chose the traditional view of economists.
When further pressed, the majority in the samples in the United States, Germany, and Brazil
supported the view that their wages would not rise as fast as the price level during the
process of inflation. Shiller's results indicated that the poor and uneducated might dislike
inflation more, as they are likely less protected by asset income from changes in their real
wages. This finding aligns with the earlier observations made by Fischer and Huizinga
regarding the vulnerability of the less affluent to the adverse effects of inflation on their real
wages.

Moving to other countries, (Cardoso, 1992)argues that the inflation tax does not affect those
already below the poverty line in Latin America because of their negligible-cash holdings.
However, she finds that higher inflation is associated with lower real wages in a panel of
seven Latin American countries.
An additional fragment of evidence comes from (Lassance Cabral et al., 1998)who points out
that the Gini coefficient in Brazil increased steadily with rising inflation in the 1980s and
then declined with the successful inflation stabilization of 1994-1996. (Ravallion & Datt,
1996) found in a cross-time, cross-state study of India that observations with higher inflation
rates also had higher poverty rates. (Romer & Romer, 1998)argue that the effects of inflation
on the incomes of the poor are likely to differ between cyclical and longer-term perspectives.
In the short run, an increase in (unanticipated) inflation will be associated with a decline in
un- employment, that may well relatively benefit the poor. Over the longer term, how- ever,
higher inflation cannot permanently reduce unemployment, and the effects of inflation on the
poor could then be reversed. Even in a cyclical perspective, Romer and Romer find the
effects of unemployment on the income distribution to be stronger in earlier decades than in
the nineties (Bakri et al., 2022).digged deeper the relation between real wages and inflation
andstated that when inflation decreases the real wages by many ways, firstly there is
adownfall of capital stocks and productivity of labor and secondly there is a change in
general prices which vary from labour intense good and services. (Brauman, 2015) also
conducted the research that states that there is a decrease in real wages during inflation and
this income aspect can be linked to the increase of poverty. A data shows that maximum
poverty coincides with minimum inflation and it was concluded that as inflation rises, the real
wages declines which results in the increase in poverty and the lower class suffers.(Chaudhry
et al., 2008) researched that how inflation affects the cost of food and fuel and how it affects
the poverty in Pakistan. Chaudhry’s research shows that only 1% increase in the price of food
increase 2% in poverty gap and it also shows that increase in food prices has a greater impact
on poverty than energy inflation and if 1% of inflation in energy prices is done the poverty
gap increases by 0.44% which is lower than food inflation. The study also shows that the
lower income class consumes more food than fuel and due to this poverty increases more
when prices of food products increases because energy inflation has a slight lower impact
because lower and middle class consume less energy such as transport, AC, fridge etc. and
the research concluded that there is an 8% increase in poverty when there is 20% increase in
food prices in Pakistan
Collectively, these studies reveal various aspects of the relationship between inflation
aversion, socioeconomic factors, and perceived impacts of inflation on individuals,
contributing to a comprehensive understanding of people's attitudes toward inflation.
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