Inflation in the Economy of Vietnam and Measures against It
DEPARTMENT OF MANAGEMENT AND MARKETING
Macroeconomic Assignment
Topic: Inflation in the economy and selected measures against inflation
TABLE OF CONTENT
1. OVERVIEW OF ECONOMIC PERFORMANCE IN VIETNAM
Vietnam joined the World Trade Organization in January 2007 and transformed from a heavily indebted country to a low middle income one in 2010. After opening up the country’s economy to foreign investors, its GDP grew by 7.3% on average from 2001 to 2010. While Vietnam survived the global slowdown of 2008 quite well relative to its neighbors with GDP growing by 6.8% in 2010. In 2011, Vietnam has experienced persistently high inflation at 23%. The economic growth rate is no longer the number one priority in year 2011 while top priority is to combat against inflation
2. WHAT CAUSED INFLATION TO REACH 23% IN 2011
While it is well known that Vietnam is experiencing double-digit CPI inflation again in 2011, it has directly affected the lives of the people, especially the poor and has raised a difficult task for the government to maintain macroeconomic stability. It is important to understand what has been driving this high inflation. Some people blamed factors such as the soaring prices of oil and other commodities in the world market while some economists argued that the cause of high inflation was losing macroeconomic policies, including inappropriate monetary and exchange rate policy of the monetary authority. Some other people asserted that expansionary fiscal policy in the form of huge investment in large state-owned firms in 2009-2010 lead to a double digit in inflation rate.
Demand-driven as well as cost-push inflation
Global commodity prices: Given that food accounts for over 30% of the CPI basket, it is no real surprise that movements in global food commodity prices have a material impact on headline CPI inflation. While Vietnam is an important rice exporter, it is an importer of other food
Macroeconomic Assignment
Topic: Inflation in the economy and selected measures against inflation
TABLE OF CONTENT
1. OVERVIEW OF ECONOMIC PERFORMANCE IN VIETNAM
Vietnam joined the World Trade Organization in January 2007 and transformed from a heavily indebted country to a low middle income one in 2010. After opening up the country’s economy to foreign investors, its GDP grew by 7.3% on average from 2001 to 2010. While Vietnam survived the global slowdown of 2008 quite well relative to its neighbors with GDP growing by 6.8% in 2010. In 2011, Vietnam has experienced persistently high inflation at 23%. The economic growth rate is no longer the number one priority in year 2011 while top priority is to combat against inflation
2. WHAT CAUSED INFLATION TO REACH 23% IN 2011
While it is well known that Vietnam is experiencing double-digit CPI inflation again in 2011, it has directly affected the lives of the people, especially the poor and has raised a difficult task for the government to maintain macroeconomic stability. It is important to understand what has been driving this high inflation. Some people blamed factors such as the soaring prices of oil and other commodities in the world market while some economists argued that the cause of high inflation was losing macroeconomic policies, including inappropriate monetary and exchange rate policy of the monetary authority. Some other people asserted that expansionary fiscal policy in the form of huge investment in large state-owned firms in 2009-2010 lead to a double digit in inflation rate.
Demand-driven as well as cost-push inflation
Global commodity prices: Given that food accounts for over 30% of the CPI basket, it is no real surprise that movements in global food commodity prices have a material impact on headline CPI inflation. While Vietnam is an important rice exporter, it is an importer of other food