Posted at 12.16.2018
Question 2(a) Discuss and analysis the factors of inflation in your selected countries
Bangladesh and Vietnam are our selected countries. Inflation is a continuous increase in the overall price level of goods and services throughout the market. Inflation has three types which are creeping inflation, mild inflation and hyperinflation
Inflation in Bangladesh has a lot of factors. There are wages in the major employment, upsurge in the way to obtain money, oil price, low production and higher price of imported commodities.
Based on the factor for increase in wage rate in the major employment, wages in Bangladesh has been increasing for more than the last two decades due to both strong or moderately strong labor union. Because of political, social and cultural tradition as well as for a humanitarian reason, the Government cannot make a distinction between productive, unproductive, and moderately productive sector in their try to increase the wages. Wages increase with no production increase, easily transferred to more expensive of production and higher prices of consumer goods, enabling sustained inflation. Under the assumption of little if any improvement of workers' productivity growth, wage inflation at such high level is an indication of cost escalation as time passes.
Money supply can be an important determinat of inflation. Production in agriculture and fisheries sectors in Bangladesh continues to be subject to the whims of nature to a notable extent. Therefore supply of money in Bangladesh is increasing every year in order to obtain it. It has been claimed that a person of the key causes of the high food inflation throughout the FY05 was poor harvest of aus, aman and wheat crops. 6. The yearly production of these three crops transpired by 18. 12, 14. 76 and 22. 11 percent respectively in FY05 on the FY04. 7. An instance of price hike due to this fall of production is that the price tag on aman rice rose within the number of BDT 16 to 19 in FY05 from the number of BDT 14 to 16 in FY04. This excessive rise in the total supply of money may donate to the reason for high inflationary pressure in Bangladesh.
Oil price is one factor of inflation in countries include international. Oil is a fundamental input of production, it constitutes a significant portion of production cost in every sector of the economy. Although there are some recent adjustments in the administered price of energy products, a lot of the increased cost of imported fuel has not been passed on to end users, especially on diesel and kerosene. Iraq has the second greatest oil field. Oil production in Iraq has been cut by 5, 00, 000 barrels each day because the U. S. invasion in Iraq for more than 3 years. Crude and refined oil is employed in every sphere of life including manufacturing and production of consumption and material goods. Once increased oil prices, it have increased the expense of production world-wide. The businesses and suppliers have no other choices except to raise the price of goods and materials. Therefore it has caused a cost-push inflation.
In Bangladesh the output growth rate is obviously lower than the populace growth rate. This low productions isn't just for reason of recruiting, weather is also included. As an example, the production of wheat in Bangladesh has declined drastically over the years. Further, except for the Boro, the areas of rice cultivation have declined in recent years. The production of pulses and oilseeds in addition has declined significantly. Erratic weather in Bangladesh had caused crop failures. Therefore Bangladesh often confronted with problem of food shortages. As the web domestic production of food is not sufficient to meet demand such as oil, supply gap of cereals and foods, Bangladesh forced to import these from external markets. Therefore the greater percentage of upsurge in the populaion has brought in regards to a scarcity of goods. As a result, excess demand occurs that contributes to rise in prices.
Bangladesh has to import huge capital goods, necessary consumer goods and even huge quantity of food grain. The almost all of the essential food items are imported like sugar, rice, wheat, onion and edible oil and also included machineries, intermediate goods and raw materials used in production. Huge import will increase the price of import. The inflation in foreign countries causes a growth in prices in Bangladesh through the importation of commodities from those countries. When the relationships between import price index and non-food inflation in urban and rural are insignificant, the former is available to have economically as well as statistically highly significant association with the categories of food inflation. In a brief word, the reasons for upsurge in import price are twofold which is exchange rate depreciation and increase in international commodity prices.
Inflation in Vietnam has also a lot of factors. There are excessive service spending and bias allocation in the market, supply and demand mismatch, governement's increased wages policy, boom of foreign direct investment (FDI) and unbalance money used for financial development and society.
The monetary factor is excessive service spending and bias allocation in the market. Inflation can be caused if government doesn't plan and manage sum of money circulation which include in society and commodity. For example if government allocates excess amount to society like education loan, there will caused a loss of money to contribute to eonomy. Excess cash will happen if the number of commodity production is sustaining and has not increased. It'll increase consumer purchasing pressure and brings about hyperinflation.
In Vietnam supply and demand mismatch is problems or cause of inflation pressure in the united states. The evident is the signs of overheating the economy such as severe electricity shortage and congested roads and ports, a tight labor market with skilled and semi-skilled labor supply falling far behind demand and a sharp widening of trade and current account deficit. But even year to year core inflation which excludes food and fuel is stimated to own increased by 18% as Benedict Bingham, senior representative of International Monetary Fund (IMF) predicted. Because of the output gap in Vietnam willn't overcome easily, so he dominant ramifications of demand effects will persist to the next years. Within this context is important to underline, that persistent excess liquidity in the domestic markets can stoke inflationary expectations over time.
In Vietnam, government has been provided an increased wages policy. Analysis of the movements of nominal wage rate inflation generally gives a concept about the labor cost scenario. In Vietnam, government encourages workers' salary income can be increased if their performance is improved. Due to upsurge in salary income, staff have higher chance to spend more on consumption. Demand excess supply. If promotion of distributors and manufactures is helding, it'll stimulate the marketplace to increase buying power and creates leverage for due to demand exceeds supply. From then on inflation may happen.
Booming of foreign direct investment (FDI) in Vietnam will have a high rate due to Vietnam often do FDI projects that can pull up their investors' population. As an evidence, there were more than 16, 300 active FDI projects in Vietnam which may have collectively pulled in a total of $238 billion. These investors came from 100 countries and territories, and many of them are some of the world's leading multinational corporations. In 2013, FDI inflow exceeded $22 billion, an increase greater than 35% from 2012. The figures indicate that Vietnam has turned into a destination of choice for foreign investors Vietnam often do FDI projects that can pull up their investors' population. Therefore high influx of foreign exchange will often happens into the economy. It will increase money supply and when too much influx of forex, it will be grounds of inflation. Demand will also rise due to influx of forex. Whenever a rise popular cannot meet same level by import will push up the price tag on product until inflation.
In Vietnam, unbalance money used for economical development and society will always be conducted. Due to wars against French-American in the past, government need to invest enormous money to restore the economy. Therefore money that used for economic development such as subsidiares to help suppliers is less and make a predicament of demand exceed supply. The merchandise prices will increase and It contributes to the inflation. Which means government didn't use monetary effectively means don't lead consumers to a way nof controling the production and consumption of the society. Then, national budget will be reduced because of the lack of income or money. Government always lived beyond its means they need to use government funds either from local or foreign country to pay for the expenses.
In conclusion, Bangladesh and Vietnam are easily face the problem of inflation based on those factors above.