Consumer Confidence under Inflationary Pressures: An OLS-Based Analysis of Pakistan's Economy

Abstract

This study investigates the impact of rising prices on consumer confidence in Pakistan using annual secondary time series data from 2000 to 2025. Employing the Ordinary Least Squares (OLS) methodology, the analysis begins with descriptive statistics and unit root tests, which c onfirm stationarity of the variables after first-order differencing. The Ramsey RESET test indica tes no significant specification errors, validating the functional form of the model. The empiri cal findings reveal that higher prices significantly undermine consumer confidence, highlighting the critical role of consumer perceptions in shaping economic activity. As consumer confidenc e influences decisions on spending and saving, the study underscores its importance for unde rstanding aggregate demand and economic stability. The results further suggest that policies a imed at maintaining price stability, curbing market inefficiencies, and enhancing consumer trus t are essential for sustaining economic growth.