Effect of inflation on performance of cement sector in Pakistan

Abstract

Inflation affects the economy of Pakistan by creating a discrepancy between the cost of production and profit margin, which diminishes the profitability of Pakistan‟s industrial sector which happens to be a major contributor towards the national income and the economy of Pakistan. Inflation results in increase in the cost of production which negatively impacts the industrial sector.Inflation increases uncertainty and makes the planning process much more difficult. Some entities benefit from inflation while others lose and the effect of inflation is different on different classes of people and for various sectors of the economy. In this study, a sample of 18 Pakistani cement companies was takenand the variables selected are GDP Deflator, Currency Exchange Rate, COGS (Cost of Goods Sold to Sales) to sales, Return On Assets, Return On Equity, Net Profit Margin and Sales Growth. Panel EGLS method has been used to study the effect that inflation has on profitability of the cement sector.