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nflation seemed to be a chronic problem in many parts of the world. There is a wide spread recognition that inflation results in inefficient resource allocation and hence reduces potential economic growth. Inflation imposes high cost on economies and societies; disproportionately hurts the poor and fixed income groups and creates uncertainty throughout the economy and undermines macroeconomic stability. High inflation has always penalized the poor more than the rich because the poor are less able to protect themselves against the consequences, and less able to hedge against the risks that high inflation poses. Lowering inflation therefore, directly benefits the low and fixed income groups. Pakistan has witnessed a low inflation environment for the last several years but experienced a sharp picked up last year at 9.3 percent [1]. Among the more emerging developments during fiscal year 2005-06 was the significant abatement of price pressure over the course of the year. For the first ten months of the current fiscal year (July 2005 to April 2006), all important barometers of price pressure in the economy indicate a steady deceleration in inflation. Hence, inflation as measured by the Consumer Price Index (CPI) declined from 9.0 percent in the beginning of the fiscal year, to a period-average of 8.0 percent in July-April 2005-06. The salutary trend in prices is reflected in the steeper fall in year-on-year inflation, which declined to 6.2% in prices in April 2006 compared to April 2005 its lowest level in 23 months. On current trends, and barring any adverse shocks, it is expected that inflation, as measured by CPI, would be within the target of 8.0 percent set by the government for the full year. This development with regard to prices is also reflected in the other measures of inflation used in Pakistan, namely core inflation, the Wholesale Price Index (WPI) as well as the Sensitive Price Index (SPI) [2]. The governments tight monetary policy arrested the uptrend of core inflation and thus declining the core inflation pressured on the economy. Pakistan witnessed higher inflation for many reasons. The higher inflation trend in Pakistan over the last two years has been the outcomes of pressure that emanated from demand and supply sides. Four years of strong economic growth has given rise to the income levels of various segments of the society. The rising level of income has increase the domestic demand and yields the rise in the prices of essential commodities. On the supply side the pressure emerged from a verity of factor, like increase in support price. Unable to produce the targeted level and mismanagement to supply yields the increase or upward trends in the prices [3].