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Impacts of agricultural production and import on Vietnam’s inflation in the period 1990-2010

In this paper, the linear regression model is employed to analyze impacts of agricultural production and import on CPI from 1990 through 2010. The results show that these two factors profoundly influence Vietnam’s inflation rate. | ECONOMIC DEVELOPMENT No. 208, December 2011 IMPACTS OF AGRICULTURAL PRODUCTION AND IMPORT ON VIETNAM’S INFLATION IN THE PERIOD 1990-2010 by PHAN THAØNH TAÂM* Vietnam’s CPI reveals the actual inflation rate in early months of 2011. Inflation, if it is not properly curbed, will profoundly affect the national economy. One of the most obvious adverse effects of inflation is that it menaces the life of low-income people. Being a purely agricultural country (i.e. more than 70% of population is agriculture-dependent) with a high trade deficit, impacts of inflation in Vietnam are very serious. In this paper, the linear regression model is employed to analyze impacts of agricultural production and import on CPI from 1990 through 2010. The results show that these two factors profoundly influence Vietnam’s inflation rate. Additionally, violations of necessary assumptions in the study are also tested using 5% significance level. The research can provide policy-makers with a useful reference for controlling inflation in Vietnam in the future. Keywords: Import, agricultural production, inflation, trade deficit 1. Problem Vietnam’s economy is gradually regaining its health after the recent crisis. However, structural weaknesses and difficulties of the national economy have become more evident. As some economic experts put it, Vietnam’s economy in 2011 would witness a lot of challenges; inflation rate would reach around 17% and the per capital income may be around USD1,160 in current price. However, Vietnam still needs a high investment rate of around 40% of GDP to maintain its growth. Thus, it is necessary to expedite the economic restructuring and enhance the effectiveness of investments. High inflation rate is threatening the national economic stability in 2011. Since Vietnam’s inflation has structural trait, it is very difficult to control, especially when price of foodstuff has incessantly 44 risen in early months, and import showed no downward trend in the last months .