Vietnam Inflation

The main context of this article concerned about inflation problem in Vietnam. Vietnam moves in inflation fight. Since the beginning of this year, the government has shifted policies towards the prices .Annual rate of inflation rose to 12.31 percent in January- hit a two-year high. It means the cost of living is much higher. The electricity prices raised 15 percent. Besides, the retail price of oil products was raised 24 percent by the government. The Vietnamese government raised the electricity and oil price to reduce budget spending .Also, the central bank recently raised the cost of borrowing to curb inflation. Furthermore, the government announced a set of measures that reduce government debt, cut back on subsidies. Besides, the Vietnam dong has been under pressure despite Vietnam's rapid pace of economic growth. Vietnam had devaluated its currency, the dong by 8.5 percent in order to reduce the risk of a shortfall in foreign currency reserves. But it also means the costs of import are higher, in return it could again increase inflationary pressures. Vietnam‘s economy depends heavily on imports, thus reducing currency certainly affect the price overall. The adjustment of exchange rate may increase the foreign debt burden, particularly of state enterprises. But this policy is necessary in the interest rates. Moreover, the adjustment of exchange rates also signals to force state enterprises to be more caution when borrowing. Also it is reasonable to encourage people instead of holding gold and dollars by holding Vietnam dong. The raised of interest rate by two points but the government still struggled to control inflation. In the last year, Vietnam had already achieved its inflation target. In this years, one big question is how Vietnamese‘s government can reach to the inflation target of 2011 about 7 percent? So the government should continued interest rate increases to improve this situation to curb inflation also reach to inflation target base on expectation.