Vietnam Inflation 2007 - 2012

I. Introduction:

1. Inflation in Vietnam from 2007 to 2012

(internet sources)

In the 2007 - 2012 period, the consumer price index (CPI) in December of each year compared with the index of December from the previous year was over 10% (excluding 2009 and 2012); while GDP growth was approximately 6% each year from 2008 till now. It was significantly lower than the average rate of 7-8 % in previous years. Comparing in the same period, Vietnamese’s inflation rate is higher than many countries in the region and around the world.

Looking at the evolution of inflation from 2004 to 2012, the “cycle” of Vietnamese inflation can be seen. During that 9 year period, spiral inflation cycle repeated every 3 years, in which it increased sharply in 2 years and dramatically decreased in the next year. In 3 years from 2004 to 2006, the CPI rate was respectively 9.5 %, 8.4% and 6.6%. In 2007, 2008 and 2009, CPI was 12.6 %, 19.9 % and 6.5%. And it was 11.8%, 18.13 % and 6.81 % in 2010-2012. According to this pattern, the inflation rate could rise in the year 2014.

2. Effect of inflation to the economy and society.

a. Manufacturing sectors: high inflation rate made input and output prices to fluctuate constantly, causing the false stability of the production process. The devaluation of the currency has disabled business activities. Business and production efficiency in enterprises changed, causing economic turmoil. If a particular enterprise interest margin was lower than inflation rate it could have a huge risk of bankruptcy.

b. Goods circulation areas: inflation accelerated the speculation process leading to scarity of goods. Enterprises did not want to invest in goods circulation areas and when inflation became difficult to judge, the capital invested in the manufacturing sector faced higher risks. Because there were many people involved in the field of good circulation this area became chaotic. The fast monetary transaction between seller and buyer...