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as adverse effect for an economy that import crude oil to cater to its often fragile industry.

Since 1970’s rapid change in prices are of concern in almost all the countries. In Pakistan, like all the developing countries, the domestic price level started rising from the mid 1970’s. In early 1980’s, the exchange rate started depreciating continuously. It leads to suggest a correlation between the two variables due to continuous devaluation of currency and inflation in 1980’s. In 1970’s the oil prices rose to vey high and 1980’s has not been far from the minds of public or of monetary policymakers. Rising oil prices were followed by the double digit inflation in developed countries in those early episodes. Central bank says that they are affirmative not to repeat this, amassing that they are in favor to held integrity with the public by securing low inflation and achieving stable and well anchored inflation expectations. The key measures policymakers often focus on oils core inflation this may seem surprising since core inflation exclude energy prices is that they are typically quite volatile for example, after increasing rapidly and hitting a record high $145/barrel in July 2008 and then again fall back to $100/barrel in September. Temporary oil prices increase do not intend to pass through the prices of non energy foods and services when the central bank is creditable that is when inflation expectations are well anchored and therefore will not result in higher overall inflation rate.

Core inflation focuses the public attention on this measure is an indicator of what future inflation is going to be like. Those who set the prices and wages can find the core inflation may help in influencing the long run inflation expectations price of oil and exchange rate changes affect inflationary pressure from increase in the prices of oil.

As oil prices stabilize, as they have recent months, the corresponding pressure of inflation will disappear. As a result, both basic and overall measures of inflation may decrease with the overall inflation rate likely decrease towards the lower rate of basic inflation.

For the world inflation, 2010-11 is the most eventful year. The inflation poses serious threats to macroeconomics stability around the world. The worrying thing is that the recent spike in inflation is coming more from food inflation is likely for poverty situation. By ADB study, a 10% rise in flood inflation is llikely to deteriorate peverty situation by 2.7% points. Either increase in aggregate demand or a decrease in aggregate supply, inflation results. These two sources effect price level of an economy. Demand pull inflation arises from many factors like money supply, government expenditures, exports or gross domestic products etc. We can define cost push inflation as increase in general price level resulting from increase in cost of production. The main sources of cost push inflation may be decrease in aggregate supply that may be due to cost of production, increasing wages, higher imports, rising taxes, budget deficit or fiscal deficit.

OBJECTIVES OF STUDY

The basic purpose of this study is to determine the impact of oil prices on the inflation in Pakistan. The purpose of this research is to determine which factors are affecting that results an increase oil prices in Pakistan and how they can be controlled and what step should take to government to contr