Inflation and Its Impacts on Vietnam
1. Introduction
Inflation - a global phenomenon is becoming a burning issue in many countries all over the world today.
The Oxford® Dictionary of Business presents the following definition for inflation: “A general increase in prices in an economy and consequent fall in the purchasing value of money.”
In Germany in January 1921, a daily newspaper cost 0.30 marks. Less than two years later, in November 1922, the same newspaper cost 70,000,000 marks. All other prices in the economy rose by similar amounts. This occurrence is one of history’s most spectacular examples of inflation, an increase in the overall level of prices in the economy (Principles of Economics, N.Gregory Mankiw, Chapter 1, p.13). When prices go up, the cost of money decreases and your purchasing power consequently goes down. For example, with 3% inflation, the price of a $100 T-shirt today would be 103$ next year. In short-term, inflation may seem not worth mentioning; however, in long-term it will lower the standard of living. According to the example above, with just 3% inflation annually, in 20 years you will need a whole of $180 to buy the same T-shirt. That means over that time, if your income cannot follow the price, you may be at risk of financial problem.
Currently, inflation is also a big trouble in Vietnam as well as Asia countries. Vietnam’s government estimated that the inflation rate in April rose to 21.42 percent, the sixth consecutive month of significantly increasing and among the highest rate in Asia (Vietnam’s inflation hits 21.4 percent in April, Thanh Nien Daily News, April 26, 2008). Such hazardous situation has drawn great attention of authorities and general public on account of its severe impact on the economy in general and on people’s life in particular. This paper, with the purpose of giving the background knowledge of inflation, discusses the questions of what causes the high inflation, how inflation affects our economy and social life and what are the solutions
Inflation - a global phenomenon is becoming a burning issue in many countries all over the world today.
The Oxford® Dictionary of Business presents the following definition for inflation: “A general increase in prices in an economy and consequent fall in the purchasing value of money.”
In Germany in January 1921, a daily newspaper cost 0.30 marks. Less than two years later, in November 1922, the same newspaper cost 70,000,000 marks. All other prices in the economy rose by similar amounts. This occurrence is one of history’s most spectacular examples of inflation, an increase in the overall level of prices in the economy (Principles of Economics, N.Gregory Mankiw, Chapter 1, p.13). When prices go up, the cost of money decreases and your purchasing power consequently goes down. For example, with 3% inflation, the price of a $100 T-shirt today would be 103$ next year. In short-term, inflation may seem not worth mentioning; however, in long-term it will lower the standard of living. According to the example above, with just 3% inflation annually, in 20 years you will need a whole of $180 to buy the same T-shirt. That means over that time, if your income cannot follow the price, you may be at risk of financial problem.
Currently, inflation is also a big trouble in Vietnam as well as Asia countries. Vietnam’s government estimated that the inflation rate in April rose to 21.42 percent, the sixth consecutive month of significantly increasing and among the highest rate in Asia (Vietnam’s inflation hits 21.4 percent in April, Thanh Nien Daily News, April 26, 2008). Such hazardous situation has drawn great attention of authorities and general public on account of its severe impact on the economy in general and on people’s life in particular. This paper, with the purpose of giving the background knowledge of inflation, discusses the questions of what causes the high inflation, how inflation affects our economy and social life and what are the solutions