The hottest topic ever

Perhaps some of you get confused when reading the title but I am not writing about love or sex or any of that hot.

I am talking about The Food Price Crisis. That’s it!

haizz 😐

These days my mom is always whining about the prices. And not only my mom, on a forum I’ve joined since I was at the University, The Food Price Crisis (FPC) is one of the most boiling topics ever. Housewives and students from different cities in Vietnam connect to update about the increase trend and to compare prices between one city with another.

I am showing you The Consumer Price Index 03/11 chart   drawn based on the digits of Vietnamese General Statistics Office.

The consumer prices index chart

Ok, the dark red columns is standing for prices in March, 2011; the green ones is February, 2011; yellow showing numbers in December, 2010; orange for March, 2010 while the blue ones is representing the average prices in 2009. 

The Consumer Price Index

consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The CPI is defined by the United States Bureau of Labor Statistics as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

Calculating the CPI for a single item

\frac{CPI_2}{CPI_1}= \frac{Price_2}{Price_1}

Where 1 is usually the comparison year and CPI1 is usually an index of 100.

Alternately, the CPI can be performed as CPI= \frac{\text{updated cost}}{\text{base period cost}} \times 100. The “updated cost” (i.e the price of an item at a given year, eg: the price of bread in 1982) is divided by the initial year (the price of bread in 1970), then multiplied by one hundred.

Calculating the CPI for multiple items

Example: The prices of 95,000 items from 22,000 stores, and 35,000 rental units are added together and averaged. They are weighted this way: Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Other: 6.9%, Apparel: 6.0%, Entertainment: 4.4%. Taxes (43%) are not included in CPI computation.

 CPI = \sum_{i=1}^{n} CPI_n * weight

The chart is showing an up trend in almost groups except for the Telecommunication ^^. And it’s obvious that price is highest increasing in groups of Food & Beverage, Household & construction supplies, Transportation and Education.

Personally, I think these statistics are not presenting exactly what is happening on the market. The price in this March is at least twice more expensive than the recorded ones in 2009, especially in the group of Food and Beverage services.

Well you can find a lot more information on the Internet. I am just giving my own view. 

When I was doing some small researches over the Internet, I found out that the FPC has been spreading not only in Vietnam.

World food prices reached a new historic peak in January 2011, exceeding prices reached during the food crisis of 2007-08. The spike in prices in 2007-08 took the total number of hungry people to over a billion – a sixth of the world’s population. Millions of people’s lives are under threat.

Food prices have recently passed the levels reached during the food crisis of 2007-08. People around the world are starting to feel the impact and some countries like Tunisia, Egypt or Algeria are experiencing riots, caused in part by the increasing costs of food. The sudden food price hikes have pushed millions of people in developing countries further into hunger and poverty. And it’s not just high prices that are a problem. Prices are unpredictable, meaning that consumers can’t rely on a regular price, and producers are unable to plan their investments with certainty.
 Since July 2010, prices of many crops have risen dramatically. Prices of maize increased 74%; wheat went up by 84%; sugar by 77% and oils and fats by 57%. Rice prices fortunately remain fairly stable with prices in December 2010 less than 4% higher than the previous year; meat and dairy also remained stable, but at high levels.

The UN Food and Agriculture Organization said its food price index was up 3.4% from December, marking the highest level since the organization started measuring food prices in 1990.

Well, there are considerable drivers to this situation:

  1. Reduced production due to bad weather
  2. Export restrictions and panic buying
  3. Increased demands 
  4. Financial causes such as the depreciation of the dollar, low interest rates and speculation.
  5. Increased oil prices which drive up the cost of agricultural essentials like fertilizer and transport.

In my opinion, the 4th and the 5th reasons are pretty correct to Vietnamese market nowadays. 

Financial problems, including Built-in inflation (leaded from rising up the basic wages for workers), demand-pull inflation (resulted from increase in both private and government spending) , depreciation of the Vietnam Dong (in order to balance the trade values)… play an important role in defining the prices. (In an article, I can not cross all the t and dot all the i but I promise to clarify these stuff in another post.)

I have an insecure feeling about this situation.

Agree that I am not an economist to point out all the warning signs, however, I find a lot of similarities between the ongoing crisis in Vietnam and the awful one in 2008 which happened in America.

Do you want to know what the similarities are?

I will tell you later.

I must go finish my work now :).

3 Responses to “The hottest topic ever”
  1. Tâm Thiền says:

    psychology may be play some role 🙂

    • Vanessa Vu says:

      Yep you are right. Psychology can cause great impacts.
      I considerate this factor, but I think it is complicated and worths a solid post, rather than being combined with the technical elements.

  2. HaNoMi says:

    The FPC has directly affected my life. I have to consider tighten my purse-strings carefully everyday. 😦 Last night, the VN news reported on record-high inflation in China, and I think that we will soon be like “our neighborhood”. haizzz… The unexpected decision of the Ministry of Finance (at 9p.m) always leaves me in a cold sweat. @_@ When will we get out of the difficult situation?
    Thanks for your detailed analysis of the FPC. It is obvious that you spent a good deal of time on it. It will be useful for my study at uni. I’m looing forward to your others post about the topic.

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