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BUSINESS ADMINISTRATION DEPARTMENT

BASIC
MACROECONOMICS
(ECO121)
GROUP ASSIGNMENT
Inflation in VietNam
Lecturer: Nguyễn Thị Mai Anh
Class: IB1602- Group 2:Trần Hoài Anh HS150639
Nguyễn Sơn Tùng HS150529
Nguyễn Hồng Nhung HS150466
Nguyễn Thị Huyền Trâm HS 150513
Lưu Hoàng Chiến HE151495

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I. Literature review
1.Inflation:
Inflation is a sustained, generalized increase in the prices of goods and services
in an economy or the decline of purchasing power of a given currency over
time. A generalized increase in prices means the prices of all, or at least most,
goods and services go up.
Inflation can be so low that people don’t pay any attention to it or can also be so
high that it causes significant problems in the working of the economy. A
particularly extreme case of high inflation is called hyperinflation.
Inflation is caused when goods and services are in high demand, thus creating a
drop in availability. Supplies can decrease for many reasons; a natural disaster
can wipe out a food crop, a housing boom can exhaust building supplies, etc.
Whatever the reason, consumers are willing to pay more for the items they
want, causing manufacturers and service providers to charge more.
The most common measure of inflation is the rate of increase in the consumer
price index (CPI). The CPI is a theoretical basket of goods, including consumer
goods and services, medical care, and transportation costs. The government
tracks the price of the goods and services in the basket to get an understanding
of the purchasing power of the U.S. dollar.

2.Formular:
● Compute the inflation rate:
The percentage change in the CPI from the preceding period.
Inflation rate = (CPI this year - CPI last year / CPI last year) x 100
● Other common measures of inflation are:
GDP deflator is a measure of the price of all the goods and services included in
gross domestic product (GDP). The US Commerce Department publishes a
deflator series for US GDP, defined as its nominal GDP measure divided by its
real GDP measure.
GDP deflator = Nominal GDP / Real GDP x100
(One way to measure the economy’s inflation rate is to compute the percentage
increase in the GDP deflator from one year to the next.)

II. Analysis
1.The inflation of Vietnam
In macroeconomics, inflation is a persistent increase in the general price level of
goods and services over time.(N. Gregory Mankiw, Macroeconomics)[1] 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. When compared to other
countries, inflation is the decrease in the value of one country's currency relative
to other countries' currencies. In the first sense, one understands that the
inflation of a currency affects the economy of a country, and in the second
sense, it is understood that the inflation of a currency affects the whole
economy. economy using that currency. The extent of influence of these two
components is still a matter of controversy among macroeconomists. The
opposite of inflation is deflation. An inflation index of zero or a small positive
one is called "price stability".

Although the COVID-19 epidemic is complicated and has far-reaching impacts

on production and business activities and the lives of people and businesses, up
to this point, experts and international organizations All acknowledge
businesses have adapted to the new normal, and forecast inflation in Vietnam in
2021 will be at 3% to less than 4%.(cand, 2021)[2] Compared with the inflation
rate of some countries in the region and in the world such as China: 6.5%;
Indonesia: 6.59%; USA: 4.08%; Thailand: 3.21%; Euro Area: 3.07%; Japan:
0.7%, Vietnam's inflation is somewhat higher. In the first half of 2008, inflation
continuously escalated and surpassed all rules established for decades, forcing
Vietnam to adjust its policy from prioritizing economic growth to controlling
inflation. Vietnam is an agricultural country with more than 60% of the
population and workforce being farmers. The dependence of the economy in
general and of market prices in particular on fluctuations in the food and food
production sector of our country is still very large. Vietnam's economy currently
has a very large openness, up to 140-150%. The openness of the economy is
assessed through import and export activities as a percentage of gross domestic
product. Vietnam's export turnover in recent years is about 130-140 billion
USD, while GDP is just over 100 billion USD.(baochinhphu, 2014) [3]With
such a large opening, the domestic price factor depends a lot on the world
commodity prices. In 2010, the world economy recovered, the price of raw
materials increased, causing the domestic price to increase: the price of crude
oil in 2009 was 60 USD/barrel, in 2010 it was over 80 USD/barrel. In general,
the increase in prices is due to costs, not too much money being pumped out. In
fact, the State Bank has been implementing a tight monetary policy to fight
inflation and protect the purchasing power of VND.

2. Comparison
We can realize that the State is doing a good job of controlling and reducing the
inflation rate year by year, specifically:

Vietnam's Inflation Rate 2010 - 2020 (Unit: %)

From the table of inflation rate statistics over the years above, we can see that:
In 2011 the inflation rate was 18.58%, the highest in the period 2010 - 2020 and
the second highest (only after 2008). in the period 2000-2020.
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 reached a record low
of 0.63% in 2015. In the period from 2016 to 2020, Vietnam's inflation rate has
always been kept stable at 4%.

The past 2020 has been a year of many fluctuations, COVID-19 has caused a
serious decline in the economies of countries around the world. For Vietnam, its
effect on the economy is similar. But Vietnam has successfully controlled
inflation in the last year and has achieved the target set by the National
Assembly (below 4%).
Average CPI growth rate in 2020 (%)

The average CPI in 2020 increased due to the following main reasons: The price
of food items increased by 4.51% over the previous year (making the overall
CPI increase by 0.17%), of which the price of rice increased by 5.14%. due to
the increase in export rice prices and domestic demand; Prices of food items
increased by 12.28% over the previous year (making the overall CPI increase by
2.61%), of which the price of pork increased by 57.23% due to the uncertain
supply (making the overall CPI increase by 1 ,94%), according to which, the
price of processed meat increased by 21.59%, pork fat increased by 58.99%,
besides, due to the impact of storms and floods in the central provinces in
October and November. the impact makes the vegetable area heavily flooded,
many ponds, lakes, barns damaged, washed away, etc., causing the price of
fresh, dried and processed vegetables to increase; The price of drugs and
medical equipment increased by 1.35% due to the complicated situation of the
Covid-19 epidemic in the world, so the demand for this item is high; Continuing
to implement the roadmap to increase tuition fees according to the
Government's Decree, the price index of educational services in 2020 increased
by 4.32% compared to 2019. (gso, 2020) [4]
Besides, there are a number of factors contributing to restraining CPI growth
rate in 2020: Prices of essential commodities such as gasoline and oil decreased
by 23.03% over the previous year (making the overall CPI decrease by 0.83%);
kerosene price decreased by 31.21%; domestic gas price decreased by 0.95%
due to the influence of world fuel prices; People's demand for travel and tourism
decreased due to the impact of the Covid-19 epidemic, causing the price of the
package tour group to decrease by 6.24% compared to the previous year;
transportation charges of vehicles such as trains and planes decreased[2]; The
Government has implemented support packages for people and producers facing
difficulties due to the Covid-19 epidemic such as the support package of the
Electricity of Vietnam to reduce electricity prices and electricity bills for
customers, so the electricity price in May and June this year decreased by
0.28% and 2.72% respectively compared to the previous month. All levels and
sectors have actively implemented many synchronous solutions to prevent
complicated developments of the Covid-19 epidemic, ensure the balance of
supply and demand and stabilize the market.

Core inflation in December 2020 increased by 0.07% over the previous month
and by 0.99% over the same period last year. Average core inflation in 2020
increased by 2.31% compared to the average in 2019.
Vietnam is a country with a large open economy, so it is inevitable that the price
of input materials from the world will increase. The world is worried that
inflation will flare up when the US and other countries launch many economic
stimulus packages. The world crude oil price tends to increase sharply. And
much will affect the economy of Vietnam in the future.
(thoibaotaichinhvietnam, 2021)[5] However, we are still keeping the inflation
rate at a stable level below 4%. That is a good sign for Vietnam's economy in
the future.

III. Recommendation
According to the General Statistics Office, the consumer price index (CPI) in
February 2021 increased by 1.52% compared to the previous month, this is the
highest increase in the last 8 years and increased by 1.58% compared to
December/December. 2020. However, compared to the same period last year,
CPI in February 2021 only increased by 0.7%, the lowest since 2016 until now.
On average, in the first 2 months of 2021, CPI decreased by 0.14% compared to
the same period last year.

According to Economist, Associate Professor, Master Dinh Trong Thinh, in

2021, Vietnam's economy is forecasted to recover and develop strongly, which
will put great pressure on prices, interest rates, etc. exchange rate and inflation.
Increased consumer demand is also a factor that can promote high inflation.

Inflation forecast for 2021, Dr. Nguyen Duc Do, Deputy Director of the
Institute of Financial Economics, said that in 2021, when the epidemic is better
controlled thanks to a vaccine, while the domestic and world economies
recover, inflation will be higher than the same period last year. will tend to
increase again. With the assumption that core inflation increases by an average
of 0.23%/month, equivalent to the increase of 2019 - the year before the
epidemic, at the same time, the world and domestic gasoline prices increase
slightly, CPI compared to the previous year. with the same period last year in
December 2021 will increase by more than 3%, and the average inflation will be
at more than 2%. In the event of sharp fluctuations in gasoline or food prices
like in 2019, average inflation this year is likely to remain below 3%.

Associate Professor Ngo Tri Long also said that 2021 is still very difficult to
predict due to the unusual movements of the world market, especially the
COVID-19 pandemic, which negatively affects the domestic economy and
banking system. . Therefore, the price management should continue to operate
cautiously, flexibly and proactively. Fiscal policy should closely coordinate
with monetary policy and other macroeconomic policies in order to control
inflation according to the set target; at the same time, contributing to supporting
and removing difficulties for production, business and people's lives affected by
the COVID-19 pandemic.

Master Chu Thanh Tuan, Lecturer in Economics, RMIT University said that
inflation in the second quarter of 2021 will increase and rise higher in the
second half of this year. However, this increase may be short-term due to the
recovery of the domestic and world economies after the epidemic.
The government needs to consider both price and monetary factors. One
solution to reduce inflationary pressure on prices is that the Government can
adopt price stabilization funds and fiscal discipline to limit price increases of
some essential commodities and food. Meanwhile, low interest rates and
business support packages also help boost the economy. However, the
Government must control monetary policy more carefully and strictly. When
inflation is high due to monetary factors, it will be more difficult to control due
to price factors. High inflation in the US or European countries makes it
difficult for central banks to maintain an accommodative monetary policy
stance. When the brakes are applied to those money injection valves, the above
countries have not yet predicted how much of an impact it will have on the
economy. The government should ensure the money supply goes into the real
economy and avoid the flow of cheap money back into real estate, stocks or
cryptocurrencies. The government needs to have consistent policies, build a
stable macro-base and exchange rate, and further improve efficiency in
coordinating monetary, fiscal and price policies. In particular, successfully
controlling the Covid-19 epidemic through accelerating the vaccination process
to bring the economy to sustainable development.

In the long run, curbing inflation and keeping the value of money stable will
facilitate an increase in real output and a decrease in unemployment. Therefore,
maintaining monetary stability is the long-term goal of any economy. But in
each period, the selection of solutions to curb inflation as well as the dose of its
impact must be consistent with growth requirements and social pressures that
the economy has to bear. Governments can choose a strategy of reducing
inflation gradually, causing little volatility to the economy or a strategy of
reducing the inflation rate quickly, causing a sharp decrease in output during the
adjustment process.

Addressing these root causes takes time and is accompanied by major reforms.
Usually, to act on the direct causes of inflation and keep it at the desired rate,
governments use a system of solutions to reduce the increase in aggregate
demand or to overcome other problems. causes of increased costs.
Measures against inflation:
Inflation is generally controlled by the Central Bank and/or the government. The main
policy used is monetary policy (changing interest rates). However, in theory, there are
a variety of tools to control inflation including:

1. Monetary policy – Higher interest rates reduce demand in the economy,

leading to lower economic growth and lower inflation.
2. Control of money supply – Monetarists argue there is a close link between the
money supply and inflation, therefore controlling money supply can control
inflation.
3. Supply-side policies – policies to increase the competitiveness and efficiency
of the economy, putting downward pressure on long-term costs.
4. Fiscal policy – a higher rate of income tax could reduce spending, demand and
inflationary pressures.
5. Wage controls – trying to control wages could, in theory, help to reduce
inflationary pressures. However, apart from the 1970s, it has been rarely used

Some policies have been used in Vietnam:

Implement tight and prudent monetary policy. Accordingly, the Government

will tighten control and limit credit growth to a maximum of 20%, if necessary,
it can be 17-19%; the total means of payment is about 15-16%. Reducing the
speed and proportion of credit loans of the non-manufacturing sector, especially
the real estate and securities sectors. The government will strengthen foreign
exchange management. In the second quarter of 2011, submitted a decree on the
management of gold business in the direction of focusing on importing gold,
moving towards eliminating the gold bar business on the free market…

1. Implement tight fiscal policy, cut public investment, reduce state budget
deficit to less than 5% of GDP.
 Temporarily suspending new equipment for cars, air conditioners, office
equipment, minimizing costs of electricity, water, telephone, stationery,
petrol, etc. Closely monitor foreign borrowing and repayment of foreign
investors. Businesses.
The Ministry of Planning and Investment shall coordinate with relevant
ministries and sectors in not making advances in state budget capital and
government bonds in 2012 for projects; do not prolong the
implementation period of investment capital from the state budget and
government bonds under the 2011 plan.
The Vietnam Development Bank will reduce at least 10% of the
investment credit plan from the state credit capital.
2. Promote production and business, encourage export, control trade deficit
(no more than 16%), use energy sparingly.
In the second quarter of 2011, promulgating and implementing
regulations on regulating the balance of supply and demand for each
essential commodity. Consider tax exemption, reduction, extension of tax
payment time for imported input materials for export production for
domestic industries that lack raw materials such as textiles, footwear,
aquatic products, cashew nuts, and timber. , medicine...; continue to
temporarily refund input value-added tax on goods actually exported in
2011.
The State Bank guarantees foreign currency for import of essential goods
that cannot be met by domestic production.
3. Adjust electricity and petrol prices in association with supporting poor
households.
4. Strengthen social security. Focus on directing and supporting poverty
reduction in localities, especially communes, villages and hamlets with
special difficulties; support poor households and poor localities to export
labor; student loans…
5. Promote information and propaganda work.
IV. Reference

[1] N. Gregory Mankiw, Macroeconomics (7th Edition), Worth Publishers,

chapter 6 page 155. Retrieved from
https://scholar.harvard.edu/mankiw/publications/macroeconomics-7th-edition
[2] Cong an nhan dan, 2021. ‘’Kinh tế’’ (in vietnamese). Retrieved from
http://cand.com.vn/Kinh-te/Lam-phat-nam-2021-du-bao-se-dat-o-muc-duoi-4-
632940/
[3] baochinhphu, 2014. ‘’Độ mở của nền kinh tế và vấn đề đặt ra’’ (in
vietnamese). Retrieved from
http://baochinhphu.vn/Kinh-te/Do-mo-cua-nen-kinh-te-va-van-de-dat-
ra/199039.vgp
[4] Tổng cục Thống kê, 2020. ‘’KIỂM SOÁT THÀNH CÔNG LẠM PHÁT
NĂM 2020, ĐẠT MỤC TIÊU QUỐC HỘI ĐỀ RA DƯỚI 4%’’ (in
vietnamese). Retrieved from
https://www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2021/01/kiem-soat-thanh-
cong-lam-phat-nam-2020-dat-muc-tieu-quoc-hoi-de-ra-duoi-4/#_ftnref1
[5] thoibaotaichinhvietnam, 2021. ‘’Việt Nam chịu ảnh hưởng thế nào nếu lạm
phát ở Mỹ và các nước tăng cao?’’ (in vietnamese). Retrieved from
http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2021-05-30/viet-nam-
chiu-anh-huong-the-nao-neu-lam-phat-o-my-va-cac-nuoc-tang-cao-104833.aspx
[6] https://phantichtaichinh.com/cac-bien-phap-kiem-che-lam-phat/
[7]http://thoibaotaichinhvietnam.vn/pages/nhip-song-tai-chinh/2021-06-
02/lam-phat-se-tang-nhung-van-trong-tam-kiem-soat-105020.aspx
[8]http://cand.com.vn/Kinh-te/Lam-phat-nam-2021-du-bao-se-dat-o-muc-
duoi-4-632940/
[9]https://tuoitre.vn/6-nhom-giai-phap-chu-yeu-kiem-che-lam-phat-
426152.htm
[10] tuoitre.vn,2011.”6 nhóm giải pháp chủ yếu kiềm chế lạm phát”
https://tuoitre.vn/6-nhom-giai-phap-chu-yeu-kiem-che-lam-phat-
426152.htm