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NATIONAL ECONOMIC UNIVERSITY
INTERNATIONAL SCHOOL FOR MANAGEMENT EDUCATION
MACROECONOMICS
INFLATION IN VIETNAM
Group 4
Nguyễn Bích Ngọc
Bùi Uyển Chi
Trần Phương Mai
Trần Ngọc Huyền
Nguyễn Phương Thảo
Phạm Thị Như Quỳnh
Vũ Thị Khánh Ngân
Lê Anh Hoàng
Hà Nội, tháng 5 năm 2022
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Contents
I. INTRODUCTION..........................................................................................................3
II. INFLATION OVERVIEW........................................................................................... 3
1. Meaning and example................................................................................................3
2. Features......................................................................................................................3
3. Distribution................................................................................................................ 3
4. What are the causes of Inflation?...............................................................................4
5. How is inflation measured and its effect on the economy......................................... 4
6. Inflationary control.....................................................................................................4
INFLATION IN VIETNAM..............................................................................................5
1. Vietnam’s inflation situation......................................................................................5
2. Inflationary causes in Vietnam...................................................................................7
3. Vietnam Government’s Solutions............................................................................10
IV. COMPARED WITH THE WORLD.........................................................................11
V. REFERENCES............................................................................................................13
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I. INTRODUCTION.
After losing in the first world war, Germany's economy was in a severe crisis due to a huge
amount of compensation to Britain, France and the United States, and Germany's assets gradually
dried up. This forced Germany to print more money, but this did not make Germany richer, but
only caused the German currency to lose value, what economists call inflation.
In 1919, $1 was equal to 4.5 Deutsche Mark (DM). By 1923, however, $1 was equivalent
to 4,200,000,000,000 DM (4 trillion DM).
To make it easier to imagine, the price for a can of coca cola is 10,000 VND. However, if
Vietnam let the situation like Germany happen in 1923, to buy a can of coca cola you
would have to pay several hundred billion dong.
So what about inflation in Vietnam? Our team will elaborate more in the following sections.
First of all, you... will present an overview of inflation.
II. INFLATION OVERVIEW.
1. Meaning and example.
Inflation is understood as the continuous increase in the general price level of goods and
services over time and the loss of value of a certain currency. When the general price level
rises, a unit of currency buys fewer goods and services than in the past, so inflation reflects
a decrease in purchasing power per unit of currency.
2. Features.
- Inflation is not a random event. The price rise of this phenomenon begins and rises
continuously, suddenly. However, there are also a few cases where the sudden increase in
prices is not inflation but relative price fluctuations. This phenomenon only occurs when
supply and demand are not stable for a short time.
Example: The war between Russia and Ukraine has led to a sharp increase in world
oil prices. You can clearly see that the price of gasoline in Vietnam has skyrocketed by
several thousand dong.But the inflation rate at this stage is stable, so the increase in
petrol prices in Vietnam has nothing to do with inflation.
- Inflation is the general effect of all goods and services of an economy, not just one item at
all. Relative price movements are just one or two fixed commodities.
- Inflation is a long-term phenomenon that seriously affects the economy of a country or
region for several consecutive years. This causes countries to conduct annual measurement
problems in order to keep inflation as low as possible.
3. Distribution.
- From 0-10% is considered as Creeping Inflation, normal operating economy, low
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- From 10-1000% is called Galloping Inflation. Inflation at this level will cause general prices
to rise rapidly and cause great economic fluctuations. At this time, people tend to hoard
goods, gold and silver, real estate and limit lending at normal interest rates.
- Above 1000% is considered Hyperinflation. It severely damaged the economy, money at
this time severely depreciated causing people's living standards to decrease due to the
inability to pay for basic needs.
( Inflation is sometimes classified into three types: Demand-Pull inflation, Cost-
Push inflation, and Built-In inflation.)
4. What are the causes of Inflation?
There are some causes like:
Inflation can occur when prices rise due to high demand and low production or supply
of multiple commodities create a demand-supply gap.
Excess circulation of money leads to inflation as money loses its purchasing power.
With people having more money, they also tend to spend more, which causes
increased demand.
Example: The German government printed money to revive the economy. However, at
this time, the demand for food in Germany was quite large, but due to the consequences
of the war Germany could not provide enough food for the people, leading to an increase
in demand but insufficient supply, so the price was pushed up. At this time, people
already have a lot of money, they are also willing to spend a lot of money to buy food,
but this unintentionally causes the devaluation of the German mark.
5. How is inflation measured and its effect on the economy.
- Inflation measured: Currently, the most common measure of inflation is the consumer
price index (CPI), which measures the prices of a large number of goods and services,
including food, food, and service costs. medical… purchased by consumers.
- Effect on the economy: The purchasing power of a currency unit decreases as the
commodities and services get dearer. This also impacts the cost of living in a country. When
inflation is high, the cost of living gets higher as well. However, a certain level of inflation
is required in the economy to ensure that expenditure is promoted and hoarding money
through savings is demotivated.
6. Inflationary control.
- Reduce the amount of money in circulation:
Stop issuing money into circulation.
Increase required reserve ratio: This is a measure to reduce the amount of money
supply entering the market; affects all banks and equally among banks.
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Raising the rediscount rate and deposit interest rate: This measure will limit commercial
banks from bringing valuable papers to the state bank for discount. In addition, raising
deposit interest rates will attract more people to deposit money in banks.
Reducing budget expenditure: It is reducing recurrent spending and cutting
public investment.
Increase consumption tax to reduce personal spending needs in society, increase
goods and services provided in society.
- Increase the fund of consumer goods to balance with money in
circulation: Promoting free trade.
Reducing taxes.
Measures for imported goods.
- Use monetary policy: High interest rates and sluggish money supply growth are the
traditional ways through which central banks combat or prevent inflation. Furthermore,
maintaining a stable money growth rate and using monetary policy is also a way to control
inflation (increasing interest rates, slowing the growth of money supply).
- Use fiscal policy:
Cut spending and public investment, postpone unnecessary
expenses. Rebalance the state budget.
Increase consumption tax to reduce spending needs of individuals in society.
Reduce pressure on prices and goods.
- In addition, some other solutions can be applied such as: Borrowing foreign
aid; Reforms in income policy; Stable exchange rate.
INFLATION IN VIETNAM.
1. Vietnam’s inflation situation.
2010 – 2015
Vietnam's inflation rate (2010 - 2015)
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2011 had an inflation rate of 18.58%, the highest in the 2010-2020 period and the
second highest (only after 2008) in the 2000-2020 period.
In the period 2011 - 2015, thanks to the synchronous application of tight fiscal and
monetary policies, while promoting production, increasing exports and controlling trade
deficit, inflation tended to decrease and hit a record low of 0.63% in 2015 and in the
following periods, Vietnam's inflation rate has always been kept stable at
4%. 2019 – 2021
Năm
Chỉ số CPI
Tỉ lệ lạm phát
2019
102.79
2.79
2020
103.23
3.23
2021
1.84
During the period affected by the complicated COVID-19 situation (2019–2021),
Vietnam has the highest inflation rate in 2020 at 3.23% and the lowest inflation rate in
2021 at 1.84%.
In 2020
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o During the first wave of the COVID-19 epidemic in Vietnam, CPI declined for 4
consecutive months (from February to May 2020), even a record decline of
1.54% in April 2020. Total retail sales of consumer goods and services in April
2020 decreased by 20.5% compared to the previous month and decreased by
26% over the same period in 2019. Due to the end of the social distancing period
and the market starting to show signs of recovery, CPI in June 2020 suddenly
increased by 0.66%.Total retail sales of consumer goods and services in June
2020 increased by 6.2% over the previous month and by 5.3% over the same
period last year.
o However, the outbreak of the second COVID wave caused the market to cool
down once again. The monthly CPI was almost unchanged from August
2020 until the end of the year.
o The CPI in December 2020 only increased by 0.19% over the same period in
2019. The price level and inflation in 2020 had almost no significant changes.
Average core inflation in 2020 increased by 2.31% compared to the average in
2019, reaching the target set by the National Assembly of less than 4%. Total
retail sales of consumer goods and services increased by only 2.6% compared
to 2019 and if the price factor is excluded, it decreased by 1.2%, while in 2019
it increased by 9.5%.
In 2021: The average CPI in 2021 increased by 1.84% compared to the average in 2020,
which is the lowest average annual increase in the past 5 years (2016–2021). Average
core inflation in 2021 will increase by 0.81% compared to the average in 2020. Core
inflation in December 2021 will increase by 0.16% compared to November 2021 and
by 0.67% compared to December 2020.
This is considered to be the year that the state controlled inflation the best in the
last 3 years.
2. Inflationary causes in Vietnam.
2011
The difference between real output and potential output:
According to classical economists, one of the reasons for the increase in the CPI is
that the growth of real output in the economy exceeds potential output growth.
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Figure 1: Relationship between real output, potential output and CPI.
Government Spending:
Government spending has increased continuously in the period 2001-2010 from 24.4%
of GDP in 2001. increased to 33.4% in 2005 and increased to 37.2% of GDP in 2007,
although there is a decrease (relative to GDP) in the following years, it is still high in
the context of total budget revenue is still low (in 2010 it is expected to equal 27.8% of
GDP). The structure of budget expenditure is also interesting: Recurring expenditure
has always been around 20% of GDP in recent years, while spending on capital
construction investment is only at a modest level of less than 10% of GDP, only about
1/ 2 total annual recurrent expenditure.
Currency and inflation:
During the period 2005-2010, Vietnam continuously maintained a high credit growth
rate and money supply rate (M2) to support economic growth. The economic model
based on credit growth has put great pressure on inflation. The average growth rate is
over 30%/year, accompanied by the growth rate of the index. CPI during this period
(see Table 4).
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Balance of trade:
In the process of opening up for economic development, high economic growth is
always accompanied by a strong trade deficit. Vietnam is a small economy with a high
degree of openness, the export/GDP ratio is always above 70%, while over 87
Vietnam's imported goods are input materials for production activities in the country.
Therefore, when the price of input materials for production on the world market
fluctuates, it will adversely affect domestic goods as well as the price of Vietnam's
export goods, or in other words, Vietnam imports inflation from abroad.
2020 – 2021
- In 2021, with increasing worldwide inflationary pressures, the price of input materials
for production and transportation expenses will continue to rise, while Vietnam's
average consumer price index (CPI) will rise. The South only climbed 1.84 percent over
the previous year, the lowest in the last six years, meeting the National Assembly's aim
and proving to be a good year in terms of inflation management.
- The average CPI in 2021 increases due to the following main reasons:
Domestic gasoline price increased by 31.74% over the previous year (making the
general CPI increase by 1.14%), gas price increasing by 25.89% (making the
general CPI increase by 0.38%);
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Rice price increased by 5.79% over the previous year (making CPI increase by 0.15%) due to
the increase in domestic rice price in line with export price, increasing demand for glutinous
rice and delicious rice during the Tet holiday and people's accumulated needs during the time
of social distancing;
The price of housing maintenance materials increased by 7.03% over the previous year due to
the increase in the price of cement, iron, steel and sand in line with the price of input
materials (making the overall CPI increase by 0.14%);
The price of educational services increased by 1.87% compared to the previous year
(making the overall CPI increase by 0.1%) due to the influence of the tuition fee increase for
the new school year 2020-2021 according to the Government's roadmap.
3. Vietnam Government’s Solutions.
In general, inflation in Vietnam has been consistently low in recent years, this has both
positive and negative impacts on economic growth. Although these are encouraging signs, any
inflation level will have a negative impact on the economy and the lives of working people. To
respond proactively to challenges in the face of rising inflationary pressures, the government
has dramatically directed ministries, sectors, and localities to deploy measures to stabilize
prices and limit negative economic and social development impacts. The government also
gives policies and solutions which are promulgated to alleviate price pressures.
Reduce currency in circulation:
o Stop publishing money to reduce the amount of currency in circulation in society.
o Increase required reserve ratio: This is a measure to reduce the market's
money supply. This measure has an equal impact on all banks.
o Increase the rediscount and deposit interest rates: This measure will limit
commercial banks from bringing valuable papers to the state bank for
discount. Furthermore, increasing deposit interest rates will encourage more
people to deposit money in banks.
o The central bank applies open market operations to sell valuable documents
to commercial banks.
o The central bank sells gold and foreign currency to commercial banks.
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o Reducing budget expenditure: It is cutting recurring spending and
public investment.
o Increase the amount of consumption tax to reduce the demand for personal
spending in society while increasing the amount of goods and services
provided in society.
Increase the consumer goods fund to balance the money in circulation:
o Encourage free trade
o Tax cuts
o Import measures
Foreign aid borrowing.
Monetary reform.
The government should focus on implementing flexible and cautious monetary, interest rate, and
exchange rate policies in tandem with other countries, in response to domestic and international
market changes. In order to contain inflation, boost production and business, and promote
economic growth, fiscal policy and other macro policies needed to be harmonized.
IV. COMPARED WITH THE WORLD.
Vietnam's inflation rate is now around 2.4 percent and is predicted to remain at 3 percent
next year, compared to the world's average inflation rate last year (4.3 percent). The figure is
fairly encouraging, especially given how badly the Covid-19 outbreak has impacted
Vietnam's economy.
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The aforementioned accomplishments have been achieved despite the fact that the country
is facing significant challenges as a result of the Covid-19 outbreak, because of the tight
coordination of the Government, sectors, and levels that have actively adopted comparable
solutions. ministry to prevent epidemics and stabilize market prices.
In comparison to large economies such as the United States, Japan, and European nations,
Vietnam's inflation management and price stabilization are deemed successful, putting a lot of
pressure on the economy. The economy may continue to develop well next year, especially in
light of the rising war between Russia and Ukraine, which has also had a significant impact
on Vietnam's economy.
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V. REFERENCES.
Lê Minh Trường, 2022, Lạm phát là gì ? Nguyên nhân và giải pháp kiểm soát lạm phát,
https://luatminhkhue.vn/lam-phat-la-gi-nguyen-nhan-va-giai-phap-kiem-soat-lam-phat.aspx
Tổng cục thống kê, 2022, Kiểm soát lạm phát thấp – thành công của năm 2021 và áp lực
trong năm 2022, https://www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2022/01/kiem-soat-lamphat-thap-thanh-cong-cua-nam-2021-va-ap-luc-trong-nam-2022/
Minh Anh, 2021, Kiểm soát lạm phát thấp là dấu ấn thành công năm 2021,
http://sotaichinh.hoabinh.gov.vn/stc/1280/30476/53036/273160/Thong-tin-doanhnghiep/Kiem-soat-lam-phat-thap-la-dau-an-thanh-cong-nam-2021.aspx
Ngô Trí Long, 2015, Kiểm soát tốt lạm phát https://nhandan.vn/tin-tuc-kinh-te/kiem-soattot-lam-phat-251502/
Thanh Pahm, 2022, Hít-Le và Hành Trình Chinh Phục Đức Quốc Xã,
https://www.youtube.com/watch?v=vKhuzVQboe0&ab_channel=ThanhPahm 2021, Tỷ lệ lạm
phát Việt Nam qua các năm trong giai đoạn 2010 – 2020, https://lodongxu.com/ty-le-lam-phatviet-nam-qua-cac-nam-2/?
fbclid=IwAR3hVNwSlgpu7A9JvowpOXQQACn2RSCa6Evf3d8V0JovxOBISukYCbM7HaQ
Phạm Thị Linh Chi & Hà Ly, 2022, Lạm phát là gì? Những nguyên nhân nào dẫn đến lạm phát,
https://thebank.vn/blog/15598-lam-phat-la-gi-nhung-nguyen-nhan-nao-dan-den-lam-phat.html?
fbclid=IwAR1JvM5RJ4J7iH2lMQ4gIvM66K5bo0CHQqQvkltQA_HTQmgXSdcm3rJznTY Sun
Group, Thực trạng lạm phát ở Việt Nam trong những năm gần đây từ 2010 – 2020,
https://sungroupvn.com.vn/lam-phat-cua-viet-nam/?
fbclid=IwAR0uYUQ6ibXzH7INuh3eJWI8hWnsgtMfcxHRpTKLVAVLGe2U1iGN3pMlnys#T
huc_trang_lam_phat_o_Viet_Nam_trong_nhung_nam_gan_day_tu_2010_8211_2020
Vũ Đình Ánh, 2021, Lạm phát 2020: Thế nào và tại sao?,
http://www.baokiemtoannhanuoc.vn/goc-nhin-chuyen-gia/lam-phat-2020-the-nao-va-tai-sao146943?fbclid=IwAR3umrxVuaoTEzIWxK69WVuzKWza2PG_FPEzBbd9gIeqvAX9yOk5DNebz4
2021, Tỷ lệ lạm phát Việt Nam qua các năm giai đoạn 2010 – 2020,
https://ednagrandmercure.vn/ty-le-lam-phat-viet-nam-qua-cac-nam/?
fbclid=IwAR0UYK65ZZ8dCkSHRqRnXlMgjNdmHfXxZeKkl1CQcG4l_GecXZ3uRCXpswM
Nguyen Thi Thu Hang & Nguyen Duc Thanh, 2010, Macroeconomic Determinants of Vietnam’s
Inflation 2000-2010: Evidence and Analysis,
https://www1.undp.org/content/dam/vietnam/docs/Publications/24590_InflationFinalReport-Eformatx.pdf.
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Thúy Hiền, 2022, Áp lực lạm phát: Xác định nguyên nhân, thực thi linh hoạt giải pháp,
https://www.vietnamplus.vn/ap-luc-lam-phat-xac-dinh-nguyen-nhan-thuc-thi-linh-hoatgiai-phap/775642.vnp
2021, Vietnam’s inflation in 2020 estimated at 3.23%,
https://en.nhandan.vn/business/item/9442502-vietnam%E2%80%99s-inflation-in-2020estimated-at-3-23.html#:~:text=The%20increase%20in%20CPI%20was,%2C%20shot%20up
%20by%2057.23%25
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