Vietnam’s inflation last month, 27%, reached highest position in asia. Prices of everything go all the way up, especially necessities like gasoline, food and clothes (e.g: food prices increased 74%). Overdose foreign investment and technologically backward industry seemed to be the causes. Besides, overty rate has reduced to 15% from 58% since 1993, but now it is likely to raise again. Some workers who led vietnam’s rise from poverty are suffering from expensive city life, planning to return to their rural home. The people become disappointed as they see no efficient solution from the government. However, most economists think this period is just a temporary bump in growth.
Detailed ...view middle of the document...
o Cost-push: cost-push inflation happens when there is a decrease in aggregate supply.“vietnam is suffering from the world wide economic downturn and from high inflation that has spread through southeast asia.” Price of fuel, an important resource has gone up worldwide, driving the cost of raw material and transportation up as well. The higher the cost of the production, the lower the number of production, which leads to a decrease in aggregate supply.
o Demand-pull: demand-pull inflation happens when there is an increase in aggregate demand ( total demand increases as consumption, investment, government spending or net export increase) “rumors of price increases have caused panic buying of fuel and rice.” By the way, since vn has been a member of wto, foreign investment boosted. However,vietnam has too much investment in capital stock, but too little suitable high technology factories and labors. Aggregate demand increases but aggregate supply cannot increase enough to keep up. As a result, price level goes up.
o Unemployment: according to the article, workers are striking and leaving their working places. Some of them go back to their rural homeland. When inflation is high, unemployment is low and vice versa. This inverse relation is modeled by Phillips curve.