The Role of Inflation, Per Capita Income and Education on Household Consumption in Pakistan

Abstract

This research study focuses on the impact of economic variables, in particular Inflation, Per capita income and Education on Household expenditure. The study uses time series data from 1990 to 2024. One of the influential benchmarks of economic welfare is household consumption, to which many macroeconomic and socio-economic factors are associated. Inflation plays a role of an independent variable, which impacts negatively on consumption, declining household buying power and decreasing the real income of individuals. In addition, to raise the income level and potential to earn in future both Per capita income and education come forward in a positive relationship with Household Consumption. The various Empirical tools employed in this research study included autoregressive distributed lag models, and different preliminary tests of all the variables, which include normality, multicollinearity, autocorrelation and specification bias test to examine the relationship between all the variables. The statistical results reveal that there is a positive effect of per capita income and education on Household consumption, whereas inflation has a negative effect on the dependent variable. These observations have highlighted how important price stability, rise in income, and investments in education are, to guarantee the household spending and sustainable economic growth.