I.
Introduction
Inflation and economic growth – two pillars of a stable and developing economy – is a
debated topic in macroeconomics. In the context of today’s economic market, this issue
becomes more complex than ever, especially in the context of the volatile business
environment and the constant influence of internal and external factors. The article
“Debates over Inflation” by author Thuy Le from The Saigon Times
([Link] has attracted attention by
raising important questions and discussing the current inflation situation in Vietnam.
This study aims to analyze the detailed content of the article, understand the viewpoints
and debates taking place, and propose feasible solutions to deal with the inflation issue.
Within the scope of this research, we will delve into the important aspects of the article
and analyze its contributions to understanding and policies on inflation in Vietnam.
Inflation is the continuous and general increase in the prices of goods and services in
an economy, often measured by the Consumer Price Index. Inflation can cause many
economic issues, such as reduced purchasing power, decreased investment and
consumption incentives, an act on economic stability. Macroeconomics is the study of
the economic system in an entire country or large region, including indicators such as
GDP (Gross Domestic Product), inflation, unemployment, and government economic
policies to stablize and promote economic growth. In macroeconomics, inflation not only
affects customers’ purchasing power but also influences business investment decisions,
the monetary policies of central banks, and overall economic stability. The article
“Debates over Inflation” starts by providing context on the inflation situation in Vietnam,
emphasizing the recent increase in prices of goods and services. By analyzing
economic indicators, the article highlights the rise of the CPI (Consumer Price Index)
and the negative impact of inflation on consumers and businesses. This has sparked
heated debates about the causes and measures to address inflation. An important part
of the article is the analysis of opposing views on the causes of inflation. Some experts
believe that the main cause of inflation is excessive money supply, while others raise
concerns about disruptions in the global supply chain. The divergence in these views
has sparked in-depth discussions on approaches and solutions to control inflation.
“Debates over Inflation” discusses how central banks, such as the Federal Reserve
(Fed) and the European Central Bank (ECB), have implemented loose monetary
policies to deal with economic crises. This analysis provides a practical insight into
managing inflation through policy tools such as adjusting interest rates and asset
purchases. Besides, debate on the relationship between inflation and economic growth
is a key focus of the article. While some economists believe that stable and predictable
inflation will encourage investment and consumption, others warn of the high risks of
inflation, leading to currency depreciation and reduced purchasing power. Specifically,
the author analyzes the debate on inflation in Vietnam in 2022. Banks such as Standard
Chartered and HSBC have made forecasts on Vietnam’s GDP growth and inflation, but
there are different views on the level of concern about inflation. Securities companies
also have their own predictions about inflation, and all agree that inflation can still be
controlled. The article analyzes the causes and consequences of inflation from an
1
economic perspective and highlights conflicting views on the inflation situation in 2022.
Finally, it also emphasizes the labor situation and income of workers and their impact on
inflation pressure. Here is a detailed analysis of each issue raised by the author Thuy
Le in the article “Debates over Inflation”.
II. Analysis stage of “Debates over Inflation”
1. Financial organizations’ forecasts
The article in The Saigon Times reflects the multidimensional perspectives on inflation
among organizations and economic experts. While some organizations like Standard
Chartered and VCBS forecast that inflation could rise higher and set the forecast at
around 4-5%, other organizations such as HSBC, VNDirect, and VDSC provide lower
inflation forecasts and affirm that it remains under control. From the forecasts above, it
can be seen that financial institutions have different views and evaluations of the
inflation situation in Vietnam in 2022. Although there is consensus on forecasting GDP
growth, views on inflation are still diverse, ranging from high concerns to more optimistic
views on the ability to control inflation. In reality, according to the report by
FocusEconomic, Vietnam’s inflation rate in 2022 is still being controlled at a moderate
level, only about 3.2%. This marks an increase from the 1.83% rate in 2021, indicating a
gradual rise in consumer prices as the country recovers from the economic impacts of
the COVID-19 pandemic. So in 2022, what measures did the Vietnamese government
implement to effectively control inflation? The truth is, under the pressure of economic
recovery and global fluctuations, the government’s strategies not only aim to stabilize
macroeconomics but also ensure sustainable development. Below is an analysis of the
main strategies.
- Adjusting Monetary Policy: According to Vietnam News 2022, the State Bank of
Vietnam has decided to increase the basic interest rate from 0.25% to 4.25% as
a measure to control inflation and protect the Vietnamese dong (VND). It is
expected that this decision will have a significant impact on the financial market
and business operations. Raising the basic interest rate is a direct response to
the increasing inflationary pressure, especially in the context of rising prices of
goods. Increasing the basic interest rate is considered an effective measure to
control consumption and reduce inflationary pressure. In the context of high
inflation, protecting the Vietnamese dong also becomes an important priority.
Increasing interest rates can support maintaining the value of the Vietnamese
dong and reducing inflationary pressure.
- Fiscal and Tax Policies: In the context of increasing inflation, fiscal policies have
become an important tool to maintain price stability and control inflation. Fiscal
measures, including public spending, taxes, and budget financing, are used to
adjust the money supply and reduce inflationary pressures. The Vietnamese
government has implemented a series of measures, such as strengthening price
controls, limiting unnecessary spending, and enhancing market surveillance to
control inflation (Vietnam News).
2
- Market Management: The General Department of Market Management – Ministry
of Industry and Trade, and the Price Management Departmet – Ministry of
Finance, strengthened inspection and supervision of price activities and markets,
especially for essential goods, equipment, and medical supplies for disease
prevention, ensuring price stability for the whole country in 2022. Accordingly, the
government requested that minitries, sectors, and localities fully prepare sources
of goods to ensure timely meeting of the needs of the people for essential food,
foodstuffs, goods, and essential services.
Thanks to the proactive and flexible application of monetary, financial, and tax policy
adjustments, along with close market monitoring and strong support for production and
business, the Government of Vietnam has successfully controlled inflation in 2022.
Although there are still many challenges and pressures from outside, the synchronized
and effective coordination of policies has helped ensure macroeconomic stability and
support sustainable development in the country. The determination to maintain inflation
below 4% not only demonstrates the government’s commitment to protecting people’s
purchasing power and livelihoods, but also contributes to building trust and stability for
Vietnam’s economy in the context of global economic fluctuations.
2. Inflation from two main perspectives.
Following the article, the author analyzes inflation from the perspective of Keynesian
economics and from the standpoint of monetarism.
2.1. Keynesian economics
Keynesian economics’ perspective on inflation is analyzed in the article from three
main angles: demand pull inflation, cost push inflation, and built-in inflation.
- Demand pull inflation: This occurs when consumer demand exceeds supply
capacity.
- Cost push inflation Caused by a sharp increase in input prices and can lead to
business bankruptcy, reducing total supply.
- Built-in inflation: Related to the situation where workers demand a wage increase
corresponding to the inflation rate and businesses raise product prices, creating
an inflation cycle.
2.2. Monetarism: By contrast, monetarism emphasizes that the velocity of the
money supply (increase or decrease) is the main factor affecting inflation or
deflation. Supporters of this theory believe that government fiscal policy, spending
and taxation have no effect on controlling inflation.
3
In 2021, in the context of increasing global inflationary pressures, the prices of raw
materials for production and transportation costs have been continuously rising, but the
average Consumer Price Index (CPI) in Vietnam only increased by 1.84% compared to
the previous year, the lowest in the past 6 years, achieving the target set by the
National Assembly, continuing the successful inflation control year. This has created
significant inflationary pressure in 2022 for the government and the National Assembly
of Vietnam.
Predictions about Vietnam’s inflation in 2022 show many complex developments related
to supply and demand factors. The COVID-19 pandemic has caused production and
trade to stagnate, unable to return to normal levels, leading to supply chain disruptions
and increased transportation costs as well as commodity prices. These factors have
increased input costs for businesses, forcing them to shift the burden of costs onto
consumers or face the risk of bankruptcy.
The status of businesses ceasing operations or dissolving in the past two years also
clearly shows the challenges that the economy is facing. Data from the General
Statistics Office (GSO) showed that up to 119,8 businesses have conducted operations
from 2020 to 2021, with a significant increase in numbers over the years. This raises
concerns about the risk of a supply shortage if the remaining businesses are not
supported for recovery, or if the economy cannot attract new companies. On the other
hand, in terms of demand, the prospects for economic recovery and development in
Vietnam are assessed as very high. Expectations for Vietnam’s loose monetary policy,
including low bank interest rates and high credit growth, along with strong foreign
investment inflows, are forecast to boost demand from the private sector’s strong
growth this year.
An overview of the inflation-related sections in The Saigon Times article reflects some
important macroeconomic aspects, including production, prices, monetary and fiscal
policies, supply and demand, as well as the business and labor market situation, and
explains the relationship between these factors and the inflation situation in 2022.
3. Conflicts about inflation and monetary policy.
In the last section of the article “Debates over Inflation”, the author Thuy Le provides a
comprehensive view of the current economic situation, emphasizing the conflicting
views on inflation and monetary policy in the post-COVID 19 context. This is a complex
picture with many influencing factors, from commodity prices and central bank policies
to labor conditions and people’s incomes. Analysts make different predictions based on
current data and trends and propose solutions and policies to address these challenges.
Some analysts believe that inflation may not be too risky this year due to factors such
as reduced pressure from disruptions in supply chains and widespread vaccination.
However, recent data has shown a sharp increase in inflation, raising doubts about the
Fed’s potential interest rate hikes to curb inflation. One specific example can be seen in
the inflation of the United States. In December 2021, inflation in the United States
4
reached 7%, the highest level since June 1982. This increase is mainly due to the rising
prices of goods and services in the context of economic recovery after the pandemic.
Although the inflation rate in the US in the first month of 2022 has exceeded 7% and the
core inflation rate has reached 6%, at the Federal Open Market Committee (FOMC)
meeting in January 2022, Federal Reserve officials affirmed that they would maintain
the federal funds rate at a low level of 0 – 0.25%. In the context of rapidly increasing
inflation in the US, the Fed still decided not to adjust the federal funds rate. By March
2022, after the inflation rate continued to rise to 7.9% and the core inflation rate
increased to 6.4%, the FED decided to expand the target range for the federal funds
rate to 0.25 – 0.5% to curb inflation. This high interest rate could reduce investment and
consumer spending, thereby easing inflationary pressures. However, raising interest
rates by the Fed may be a measure to control inflation, but it also raises questions
about its impact on the larger economy, especially in the context of emerging markets
like Vietnam, which may face pressure from the strengthening USD. When the USD
rises, the prices of many international commodities (traded in USD) will decrease,
reducing inflationary pressures on importing countries.
The article also reflects the impacts that the COVID-19 pandemic has had on the labor
and income of the people. According to the General Statistics Office of Vietnam, the
average monthly wage of hired workers in 2021 is 6.6 million dong, a decrease of
45,000 dong compared to 2020. The unemployment rate among the working-age
population in 2021 is 3.22%, 0.54% higher than the previous year, indicating pressure
on income and consumer demand. The impact of decreasing income and increasing
unemployment on people’s consumption demand and purchasing power is very
significant. This creates a negative cycle for the economy: when income decreases and
unemployment rises, consumers restrict spending, leading to a decrease in businesses’
revenue, which may result in further job cuts and wage reductions, thereby continuing to
weaken the economy. Therefore, macroeconomic policies such as tightening monetary
policy by central banks and adjusting fiscal policies at the national level will be important
to regulate inflation and support economic recovery. In addition, the government also
needs to implement policies such as unemployment benefits, income support, and skills
retraining for workers to help mitigate the negative impact of the labor market on income
and consumption.
III. Conclusion
The article “Debates over Inflation” on The Saigon Times discusses the different views
of experts on the impact of inflation on Vietnam’s macroeconomic stability in 2022.
Despite high inflationary pressures globally, opinions are still divided. Some analysts
believe that the inflation risk may have been exaggerated and can be controlled through
improving supply chains and aggressive monetary policies. On the contrary, others
warn that inflation could soar due to disrupted supply chains, high commodity prices,
and a slow return to normal economic activities.
The article has provided a comprehensive and insightful overview of the inflation
situation in Vietnam, while also highlighting diverse debates and opinions from the
5
economic and political community. By proposing feasible measures and solutions, the
article has contributed to raising awareness and creating effective policies for controlling
inflation. However, it is also important to note that the article may still be lacking in
presenting opinions from various sides and has not truly generated a deep and multi-
dimensional discussion. This is particularly important in the context of a complex issue
like inflation, where multi-dimensional understanding and the involvement of relevant
parties are crucial.
(2425 words)
6
Reference
Vietnam inflation (2022) FocusEconomics. Available at: [Link]
[Link]/country-indicator/vietnam/inflation/ (Accessed: 12 May 2024).
State Bank rate hike necessary to defend VN đồng, control inflation (2022)
[Link]. Available at:
[Link]
[Link] (Accessed: 12 May 2024).
Fiscal policies work to keep inflation under control (2022) [Link]. Available at:
[Link]
[Link] (Accessed: 12 May 2024).
Lạm Phát được kiểm Soát Thành công trong 8 tháng đầu năm 09/09/2022 [Link] 812
(2022) National Institute For Finance. Available at:
[Link]
dDocName=MOFUCM244812 (Accessed: 12 May 2024).
Vy Vy (2021) Năm 2021: Doanh Nghiệp Rút Lui khỏi Thị Trường Tăng gần 20% VÌ
covid-19, Nhịp sống kinh tế Việt Nam & Thế giới. Available at:
[Link]
[Link] (Accessed: 12 May 2024).
Adams, M. (2024) Federal Funds Rate history 1990 to 2023, Forbes. Available at:
[Link] (Accessed: 12 May
2024).
7
Table of Contents
I. Introduction..................................................................................................................1
II. Analysis stage of “Debates over Inflation”.............................................................2
1. Financial organizations’ forecasts....................................................................................2
2. Inflation from two main perspectives...............................................................................3
3. Conflicts about inflation and monetary policy................................................................4
III. Conclusion................................................................................................................5
Reference.............................................................................................................................7
