This study investigates the relationship between commodity (beef mutton and chicken price) price increase, money supply, and inflation in Pakistan. The hypothesis says that an increase in commodity price leads to accumulation, higher growth rates of money supply and higher inflation. Consequently, higher inflation leads to appreciation of domestic currency with a resultant increase in import of goods seen in strategic trade policy. This causes a loss of competitiveness in the non-vegetarian tradable goods sector. In order to quantify the inflationary impact of the commodity price increase on Pakistan’s Economy, we utilized the money demand function based on the adoptive expectation hypothesis.
Keywords: Modeling commodity inflation, modeling expected inflation, modeling stability test.