FOREIGN TRADE UNIVERSITY

FALCULTY OF INTERNATIONAL ECONOMICS

DEPARTMENT OF RESEARCH METHOD AND ECONOMIC
FORECAST
**********

FINAL EXAMINATION REPORT

RESEARCH PROPOSAL: Impacts of inflation on
Vietnamese’s consumption in the period of 2007
and 2022

Subject: Research Methodology for Economics and Business

Code: KTE206
Class: KTE.206.2
Group number: 4
STT Họ và tên sinh viên Mã SV
1 Nguyễn Xuân Thành 2212150155
2 Nguyễn Trương Hoài Nam 2213150125
3 Chu Huy Hoàng 221215077
4 Lê Mạnh Hùng 2212150079
5 Trần Trung Hiếu 2214150614
6 Nghiêm Quang Minh 2212150113

Lecture: Dr. Nguyễn Thị Bình

Hà Nội – 4/2023R
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 Table of content

1. General introduction................................................................................3
1.1. Problem proposal.................................................................................3
1.2. Research aims......................................................................................3
1.3. Research objectives.............................................................................3
1.4. Research importance...........................................................................4
1.5. Research subject..................................................................................4
2. Literature review......................................................................................4
2.1. Theoretical basis..................................................................................4
2.1.1. Theory of inflation.......................................................................4
2.1.2. The reality of consumption..........................................................7
2.2. Impact of inflation on consumption...................................................10
2.2.1. Inflation expectation....................................................................10
2.2.2. Interest rate.................................................................................15
2.3. Research gap.....................................................................................18
3. Methodology and research design..........................................................18
3.1. Research implement process...............................................................18
3.1.1. Research question.......................................................................19
3.1.2. Research design...........................................................................19
3.1.3. Data collection............................................................................19
3.1.4. Data processing...........................................................................20
3.1.5. Moral Hazard issue.....................................................................20
3.2. Conceptual framework.......................................................................20
4. Conclusion..................................................................................................21
5. Reference....................................................................................................23

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1. General introduction
1.1. Problem proposal
Inflation is one of the most important macroeconomic indexes because of its impact on
all aspects of the economy, it has a negative relationship with both banking sector
development and equity market activity (Boyd et al., 2001), can enhance economic
growth to a certain threshold (López-Villavicencio and Mignon, 2011), or even affects
the inequality (Albanesi, 2007). Understanding inflation is even more important in the
context that the past 16 years have witnessed many crises that have had a strong
impact on the global economy such as the 2008 subprime-crisis, the 2011 European
debt-crisis, COVID-19, and the 2022 Russian-Ukraine conflict. Moreover, Vietnam
has a higher rate of inflation in comparison with other developing countries in Asia
(Bhattacharya, 2014), which peaked in 2008 and 2011 at the rate 23,1% and 18,7%,
respectively (“World Bank Open Data,” n.d.)
There are many channels through that inflation influences consumption. Research
shows that an increase in expected inflation can raise consumption through a direct
increase in expected real wealth (Lieb and Schuffels, 2022). (D’Acunto et al., n.d.)
also supported this view when figuring out that higher subjective inflation expectations
reduce perceived real interest rates (via the Fisher equation) and hence the incentives
to save, which increase current consumption (via consumer Euler equation). However,
those findings are in contradiction with (Coibion et al., n.d.) that in a period of high
inflation, macroeconomic uncertainty makes households reduce their spending on non-
durable goods and services as well as purchase fewer luxury goods. In addition, the
positive influence of inflation expectation on current consumption can be counteracted
as high inflation serves as a tax on nominal assets (D’Acunto et al., n.d.). Despite its
importance, the understanding of the correlation between inflation and consumption,
especially in Vietnam, to the best of our knowledge, is inconsistent. New insight from
this study is essential for both Vietnamese policy makers and companies as they can
predict the future market and implement the suitable program, especially in the context
of rising global inflation.
1.2. Research aims
This research aims to study the impact of the change in inflation on Vietnamese
consumers when the economic growth rate fluctuated in the period of 2007-2022. To
do that, secondary data from previous research about economic growth and
consumption, therefore, can predict people's change in spending and change from
spending to saving to be able to adapt to inflation’s impacts.
1.3. Research objectives
From the research aim above, all the research question that will be considered is that:

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  What are the factors affecting Vietnamese's tendency of changing their habit of
spending or spending to saving habit and at what level can they drive
customers?
 How do such global crises like the subprime crisis, European debt crisis, Covid-
19,... affect the Vietnamese’ economy and inflation, resulting in a change in
consumption?
1.4. Research importance
The research of inflation impact on consumption behaviors in Vietnam has potential
advantages to both firms and national economy. To firms, this study illustrates the
flow of Vietnamese people’s money when facing to an increase in price level, what
kinds of goods and services people keep consuming and what they tend to diminish.
The firms, therefore, are partially aware of consumption habits in Vietnam and as a
result, these companies could start a marketing campaign focusing on the kinds of
expenditures to boost consumption and maximize its profits. To national economy,
thanks to the inflation effect, the unemployment rate reduces in a short run. The more
labor force is, the more output could be produced. The GDP of Vietnam consequently
increases and level up the living standard. As a result, the authorities create policies to
simultaneously keep the unemployment rate at low proportion and cope with the
increasing price level.
1.5. Research subject
The major research objectives are the group of people who are in the labor market.
They could be a group of undergraduates, a group of young workers or a group of
people who have stable income and strong financial background. These people are
mostly consumers who are sensitive to the price level and new trends, easily adapt to
the technological environment and frequently update the latest information and most
importantly have enough purchasing power to afford their shopping habit. Their
interest and demand for goods are the best measurement for the consumer market.

2. Literature review
2.1. Theoretical basis
2.1.1. Theory of inflation
Inflation is a rise in prices, which can be translated as the decline of purchasing power
over time. The rate at which purchasing power drops can be reflected in the average
price increase of a basket of selected goods and services over some period of time.
The rise in prices, which is often expressed as a percentage, means that a unit of
currency effectively buys less than it did in prior periods. Inflation can be contrasted
deflation, which occurs when prices decline and purchasing power increases.

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While it is easy to measure the price change of individual products over time, human
needs extend beyond just one or two products. Individuals need a big and diversified
set of products as well as a host of services for living a comfortable life. They include
commodities like food grains, metal, fuel, utilities like electricity and transportation,
and services like healthcare, entertainment, and labor. Inflation aims to measure the
overall impact of price changes for a diversified set of products and services. It allows
for a single value representation of the increase in the proce level of goods and
services in an economy over a period of time. Prices rise, which means that one unit
of money buys fewer goods and services. This loss of purchasing power impacts the
cost of living for the common public which ultimately leads to a deceleration
in economic growth. The consensus view among economists is that sustained inflation
occurs when a nation's money supply growth outpaces economic growth.
1. Cause of inflation
a. International researches
The causes of inflation are researched by finding out why sustained inflations occur
and what role the monetary policy play in the inflation process (Mishkin, 1984). He
concluded that there has been a convergence of views in the macroeconomics sector
on the causes of inflation. If inflation is defined as sustained inflation in the
macroeconomics view, it always leads to Milton Friedman's famous dictum, "Inflation
is always and everywhere a monetary phenomenon." However, the conclusion that
inflation is a monetary phenomenon does not solve the problem of what causes
inflation because we also need to understand why inflationary monetary policy occurs.
The competing and complementary theories of inflation are reviewed and examined by
yielding a six-blocked schematization of the origins of inflation, which are monetary
shocks, demand-side, supply-side shocks, and structural and political factors. He
concluded that inflation is the result of complex and dynamic interactions of these six
factors. (Totonchi, 2023)
In another research, the researcher tried to culminate in a specification of any
alternative hypotheses on the cause of inflation in Nigeria. He stated from empirical
evidence, an increase in real domestic produce or supply situation, especially food, and
the low cost of production of consumables will combat inflation. On the other side, an
increase in government spending will increase the money supply and depreciate the
exchange rate, which will make inflation worse. (Asogu, 1991)
b. Researches in Vietnam
A group of researchers tested the determinants of inflation in Vietnam, which is a
developing country. They wrote that "Vietnam's experience is not unique in terms of
price instability". They found that inflation is a consistent phenomenon and two factors
that affect inflation are the growth in the stock of money and external factors, using
OLS and VAR. (Nguyen et al., 2012)
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Nguyen Tri Hung (1999) attempted to find out the effectiveness of monetary policy in
controlling inflation, on both Structuralist and Keynesian positions, with a theme that
monetary policy in Vietnam is passive. He argued that monetary expansion is not the
only cause of inflation in Vietnam, so he looked at the causes and effects of inflation
in a decade from 1985 to 1995 and examined the effectiveness of monetary policy in
different situations. Finally, he concluded that monetary policies could be effective in
some instances, but they became much more ineffective when the economy opened up.
Thanh Tung Hoang and Van Anh Nguyen Thi (2019) concluded that prices at any time
(calculated by CPI) could be affected by prices of international commercial goods and
non-international commercial goods such as monetary, credit, interest rates, exchange
rates, income, inflation expectations, international prices, … And these are the factors
that pressure the inflation, using VAR model (Hoang and Thi, 2020)
2. Situation of inflation in Viet Nam from 2007-2022
We look at the period of 2007 to 2022, as there are ups and downs in the inflation rate
of Vietnam in this period, this is a graph of Vietnam's inflation in that period:(“World
Bank Open Data,” n.d.)

Table 1: Inflation rate of Vietnam from 2007 to 2022

The inflation rate in Vietnam from 2007 to 2022 has been volatile, with periods of
high and low inflation. According to the World Bank, the inflation rate in 2007 was
8.3%, which was higher than the target set by the government. This is blamed for the
rise in the price of food and oil in the world in 2007, but if so, some countries in the

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area must have the same rate of inflation. This high inflation rate is mainly caused by
the excess amount of money supply.
In 2009, the inflation rate in Vietnam was 6.7%, which was the lowest in 6 years (from
2007 to 2012). In this context of the global financial crisis, Vietnam has achieved two
successes: relatively high growth and maintaining a low inflation rate (“Năm 2009,”
2009). In 2011, the inflation rate in Vietnam increased to 18.7%, the highest inflation
rate in Vietnam in over a decade. The main causes of inflation were the increase in
food prices and the devaluation of the Vietnamese dong, as well as the expansionary
monetary policy of the government. (“phân tích tình hình lạm phát ở việt nam năm
2011,” n.d.)
From 2013 to 2022, the inflation rate in Vietnam remained relatively stable, ranging
from 2.7% to 6.7%. There are several reasons for this stable rate. Firstly, Vietnam has
implemented a series of macroeconomic policies to control the money supply,
exchange rate, and interest rate, which helps the economy to stabilize. Besides, the
government attempted to control the food price and remain a low oil prices, as they
have a significant impact on the inflation rate. Finally, due to strong economic growth,
driven by foreign investment, exports, and domestic consumption, the inflation rate
has been kept stable.

2.1.2. The reality of consumption

a. Introduction
In Vietnam, economic growth during the past ten years has been mostly fueled by
consumption. By analyzing the patterns, trends, and factors influencing consumption
in Vietnam from 2007 to the present, this literature review attempts to provide a
complete analysis of the country's current consumption condition.
b. Patterns and Trends in Consumption
The overall income of Vietnamese firms saw a significant increase in the first five
years of the entire period beginning in 2007 and ending in 2021, with an increased
percentage of roughly 19 to 39%, according to the (“PX Web,” n.d.). In addition, from
2012 to 2019, the overall revenue increased steadily, from about 10% to 14%.
However, the retail sales of goods and services revenue saw a minor decline of about
0.9% and 3.93% in the provided order in the final two years of 2020 and 2021.
People's consumption in Vietnam was noted to have a different tendency from the
declining trend in revenue from sales of goods and services, in contrast to the
consumption data from the (“World Bank Open Data,” n.d.). We guess this difference
arose from the Government policies taken to deal with the effects of the Covid 19
Pandemic and inflation.

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Table 2: : Total retail sales of goods and services to consumers between 2007 and
2021 (in billions of VND)

Table 3. Final consumer spending in Vietnam from 2007 to 2020 (in current US
dollars)
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The pattern of consumption in Vietnam has altered, but not significantly, regardless of
the share of the total revenue of Vietnamese firms for each industry. As stated by (“PX
Web,” n.d.). Between 2007 and 2021, the percentages of income in the three business
sectors of Vietnam vary somewhat, ranging from 73.50% to 79.40% for retail revenue,
from 11.3% to 12.4% for lodging and food services, and from 9.3% to 13.6% for
services and tourism. The retail revenue proportion experienced the largest change out
of the three sectors. Specifically, even if the actual sales of these two years are
different from one another, the percentage for each of Vietnam's three economic
sectors remains the same in the first and last years.

Table 4. Percentage of retail sales of consumer goods and services at actual prices by
business sector (%)

c. Factors Driving Consumption

In many emerging nations, rapid economic development and urbanization may
drastically alter the structure of the food basket (Bairagi et al., 2020). Due to the rapid
economic expansion in Vietnam, consumer earnings and purchasing power have been
rising. The General Statistics Office of Vietnam estimates that in 2020, the average
monthly income per capita was VND 6.9 million (about $300 US), an increase of 3.3%
from 2019 (“PX Web,” n.d.). Due to increased population density and access to a
greater choice of goods and services, urbanization has also contributed to increased
consumption. Moreover, as Vietnamese consumers increasingly seek out higher-
quality goods and services, shifting consumer preferences have aided in the increase in
consumption.
d. Challenges to Consumption

Despite the consumption growth, some challenges need to be addressed. Poverty is a

global socio-economic phenomenon and Vietnam is not an exception. In Vietnam, the
poverty rate has been decreasing while urbanization has happened rapidly over the past

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20 years. In addition, our results exhibit that the gross regional domestic product,
human capital, and agricultural value have the effect of reducing poverty, but
government spending and export value increase the poverty rate in Vietnam (Ha et al.,
2021). According to the World Bank, the poverty rate in Vietnam decreased from
14.5% in 2008 to 6.7% in 2018, but income inequality remains high (“World Bank
Open Data,” n.d.). This has limited the ability of some consumers to participate fully
in the economy and benefit from rising consumption levels. Additionally,
infrastructure deficiencies, such as poor transport networks and inadequate healthcare,
may limit the growth of consumption in certain areas.

Table 5. Poverty rate of Vietnam in 2018

These data and studies provide a more comprehensive understanding of the actual
situation of consumption in Vietnam from 2007 to 2021. In conclusion, the studies
reviewed here show that consumption has been a significant driver of economic
growth in Vietnam in recent years, driven by rising incomes, urbanization, and
changing consumer preferences. The pattern of consumption in Vietnam has shifted
towards retail, with food & accommodation and tourism & service. Despite the
challenges posed by income inequality and infrastructure deficiencies, the future of
consumption in Vietnam looks promising. From these researches, we cannot know to
what extent inflation affects the consumption of Vietnamese people although the
Government in Vietnam has controlled the inflation rate to remain stable.

2.2. Impact of inflation on consumption

2.2.1. Inflation expectation
Inflation expectation is one of the most important mediator variables in the
relationship between inflation and consumption. Actual inflation is driven by expected
inflation. While inflation has both a negative and positive effect on inflation

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expectation, inflation expectation impact on inflation only negatively (Xu et al., 2017).
There are many research shows that inflation expectation is a key determinant the
decision of purchasing of a household. Research indicates that EPU ( Economic Policy
Uncertainty) which is a kind of government forecast on inflation expectation has a
significant impact on consumer spending (Al-Thaqeb and Algharabali, 2019).
(University of Minnesota, Minneapolis, MN 55414 USA and Diao, 2020) also so that
there is a difference in the level of expenditure between people who have high
inflation and those low ones. After synthesizing previous research on this topic, we
assume that there are three channels in which inflation expectation affects
consumption: economic uncertainty, types of goods, and demographics.
2.2.1a. Economic uncertainty
Uncertainty is the modern equivalent of a “whipping boy” for economics and today,
uncertainty is often blamed for any expected weakness in company earnings or broader
economic growth due to economic shocks.
a. Household decision
(k. Ben-David, Elyas Fermand, Camelia M. Kuhnen Geng Li, 2018) states little
evidence that a higher expectation of economic growth in the euro era by itself results
in significant changes in spending on non-durable goods and services. However during
the COVID-19 crisis when macroeconomic uncertainty extremely increased,
households were reluctant to spend income support sent by the government, especially
in terms of recreation (e.g., Dunn, Hood, and Driessen 2020, Coibion, Gorodnichenko
and Weber 2020a, Christelis et al. 2020a). In terms of durable goods, uncertainty’s
impact seems to be lower, with an estimated 1 percent increase in uncertainty
decreasing the chance of buying a holiday by 3 percent while it is only 1 percent for
such luxurious items like jewelry (Ben-David et al.,2018).
In short, we express these results as providing further evidence that uncertainty about
the economy reduces household expenditures, not just on typical monthly spending but
also on larger and less frequently purchased durable goods and services.
H1: Due to uncertainty, households tend to spend more on durable goods rather than
non-durable ones
b. Investment
Uncertainty not only affects household habits of consumption but also be considered
by firms to decide whether to invest. Particularly, a one percentage point increase in
uncertainty results in a 2.1 and 0.5 percentage point decrease in the allocation allotted
to mutual funds and cryptocurrencies, respectively. This pattern is in line with the
findings of Ben-David et al. (2018), who found a negative correlation between
household SCE participation uncertainty and the share of assets allocated to hazardous
instruments. Contrarily, the impact of uncertainty on the hypothetical allocation of

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€10,000 into savings/current accounts is unfavorable, poorly assessed (substantial at
10%), and economically insignificant.
The estimated effects are positive but statistically insignificant for other, more secure
investments like bonds and retirement funds.
H2: Increase uncertainty affects companies’ expectation of development as a result
preventing further investment.
c. Heterogeneity
In order to examine heterogeneity’s impacts on consumers, we divide workers into 3
different sectors: people with high-risk jobs (hotels, bars, restaurants,...), low-risk jobs
(communication services, public administrations,...), unemployed and consider them in
the period of uncertainty caused by Covid 19. We discover (Table 2) that respondents
working in the high-risk sector are much more sensitive to macroeconomic uncertainty
than respondents in the low-risk sector (we cannot reject the null of zero response;
column 2), with a one percentage point increase in uncertainty lowering spending by
nearly nine percentage points. This conduct is in line with high-risk respondents'
increased desire to make precautionary savings in the face of uncertainty. It's
interesting to see that the retired have a comparable estimate for the sensitivity to
macroeconomic uncertainty, however the estimate is not exact because the sample size
is so small (column 3).

Table 6: Expected growth rate of EA GDP on nondurable consumption

Our findings reveal that the effects of macroeconomic uncertainty on household
spending are not uniform and imply some potential distributional effects, despite the
fact that subsamples often have less accurate estimates. households more exposed to
changes in asset values, those working in cyclically or COVID-19 affected businesses,
and households residing in southern euro area nations appear to be most sensitive.
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H3: Heterogeneity plays an important role of how consumers react to inflation
2.2.1b. Demographic
Inflation expectation affecting consumer behavior depending on demographic
factors
Demographic factors such as income, age, education level can affect the connection
between inflation expectation and consumer behavior.
A group of researchers examined the impact of three demographic dependence of
inflation by the analysis of data in Germany. They concluded that household-specific
inflation rates and group-specific news consumption explain the greater expectation
gaps of younger and older households, lower-income families, and the unemployed.
(Menz and Poppitz, 2013)
Another group of researchers conducted the demographics of inflation opinion
surveys.

Table 7: Mean inflation perception and expectation by selected demographic group

They realized that respondents that have low income have higher inflation expectation
than those that have higher income; those with less education have higher expectation
than those with higher education; young respondents have higher inflation expectation

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than the old ones; white respondents have lower inflation expectation than non-white;
and women have higher inflation expectation than men. (Bryan and Venkatu, 2001)
Another group of researchers tries to explain the role of demographic variables and
financial literacy on Inflation Expectation. They found out that individuals who are
female, poorer, single and less educated have higher inflation expectation, and this is
explained by the variations in expectation formation and financial literacy.
Particularly, people with poorer financial literacy and those who care more about how
they would pay for future expenses will have higher inflation predictions. (BRUINE
de BRUIN et al., 2010)
H4: The demographic factors in Vietnam also affect the relationship between inflation
expectation and consumer behavior
2.2.1c. Types of spending
Inflation expectations affect the customer’s behaviors through types of goods &
services spending:
a. Durable and non-durable goods:
(Premik and Stanisławska, 2017), (Bachmann et al., 2015) demonstrate via a
straightforward model that consumer spending on both durable and non-durable goods
is responsive to changes in predicted inflation, with durables showing a higher
response.
Team (Olusola et al., 2022) investigate the same issue using a different dataset on
Ghana consumer expectations, which differs from the Michigan data in that it offers
information on actual spending rather than purchasing behavior. According to their
research, consumer spending on major things (such as electronics and home
appliances) is unaffected by inflation expectations, whereas nondurable goods
expenditure is only slightly (quantitatively) positively affected. However, the
reliability of this conclusion is questionable. However, they discover some evidence
suggesting a connection between higher inflation forecasts and a higher likelihood of
purchasing a car. In contrast to (Bachmann et al., 2015), (Olusola et al., 2022) contend
that higher expected inflation may lower expected income as a possible reason for the
relatively poor link between inflation expectations and spending. Consumers'
expectations that pay growth would be substantially slower than inflation confirm this
assertion.
H5: We assume that higher inflation will increase the consumption of durable goods
more than spending on non-durable goods in Vietnam over the research period
starting from 2007 to 2022.
b. Necessity and luxury goods:
According to (Lester, 2013), five categories should be prioritized, starting with
physiological needs and working their way up to safety, consumer protection, and
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well-being. The other categories include love and belonging, self-esteem, self-
actualization, and personal progress. According to the hierarchy, consumers facing
crises typically prioritize meeting essential physiological demands first before moving
on to higher levels and toward more opulent discretionary behaviors (Forbes, 2017).
To determine whether Bahraini consumers' behavior had changed as a result of the
global financial crisis, (Mansoor and Jalal, 2010) conducted a survey. They found that
there had been a shift from expensive to inexpensive substitutes, from luxury to
essential, from large to small quantities, and from consumption to saving

Table 8. The Impact of Global Financial Crisis on the Behavior of Bahraini

Consumers

Table 1 shows that (58%) of respondents said they switched from buying expensive
goods to less expensive substitutes, (52%) from buying luxury items to necessities,
(58%) said they buy in smaller quantities rather than in large ones, and (46%)
disagreed with the notion of switching from consumption to saving. All the research
above leads to a tendency of changing from luxury goods to necessary commodities or
inexpensive substitutes when there is a recession in the whole economy.
H6: We assume that when the inflation rate increases, the demand for luxuries will
experience a decline whereas the need for necessities stays the same or even higher.

2.2.2. Interest rate

Interest rates are a key determinant of economic activity, particularly concerning
consumption. Changes in interest rates can affect borrowing costs, return on savings,
and debt burden, all of which can influence levels of consumption in an economy.
The relationship between the inflation rate and the interest rate has been mentioned by
Fisher effect theory for a long time. The Fisher effect (“Fisher’s principle,” 2023) is a
theory developed by Fisher (1930) that expresses the real interest rate as the difference
between the nominal interest rate and the expected rate of inflation. The most common
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expression of this relationship is that the expected nominal rate of return on assets is
equal to the expected rate of inflation plus the expected rate of real return. According
to the Fisher effect, expected nominal returns on assets should fully hedge against
inflation. Therefore, a positive relationship between stock returns and inflation is
expected, which implies that investors are compensated for the loss of purchasing
power resulting from inflation.
After being published, there are a lot of questions occurred about the reliability of the
theory. Many pieces of research have been conducted. In 1992, Frederic S. Mishkin
(Mishkin, 1992) indicated that although the Fisher effect is generally considered to be
strong, with a substantial correlation between interest rates and inflation, this is not
always the case and may only occur during certain periods. Recent empirical evidence
does not provide support for a short-term Fisher effect in which an alteration in
projected inflation is linked to a modification in interest rates. However, it does
confirm the existence of a long-term Fisher effect in which inflation and interest rates
share a common stochastic trend, particularly when they display trends. Similarly, a
study by Yasser A.F Fahmy , Magda Kandil (Fahmy and Kandil, 2003) has shown a
similar result.
In general, the relationship between inflation and interest rate is undeniable. It seems
that the interest rate rises in inflation and falls in the recession.
Impact of interest rate on consumption through debt burden:
According to the study about borrowing in U.S. households of John A. Weinberg
(Weinberg, 2006) the burden of servicing debts tends to rise during economic
expansions and decrease during recessions. This pattern is influenced by two primary
factors. Firstly, interest rates tend to increase during periods of economic expansion
and decrease during recessions. Secondly, the rate of growth of consumer credit is also
procyclical, with credit typically expanding at a faster rate during periods of economic
expansion, on average. Before that, in 1997, by investigating debt, delinquencies, and
consumer spending in the U.S, Jonathan McCarthy (McCarthy, 2007) also concluded
that: “Greater household debt generally has not led to reduced consumer spending in
the past; rather, the observed relationship between debt and spending is more
consistent with the hypothesis that households increase both expenditures and debt
when their income prospects improve”. Remember that, when the debt burden
increases, the consumers’ disposable income will decrease. This means that consumers
may have less money available to spend on consumption. Therefore, we propose an
assumption:
H7: In a period of high inflation, the interest rate tends to increase which leads to a
heavier debt burden and in turn lower consumption in Vietnam.

Impact of interest rate on consumption through return on savings:

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In 2017, by conducting research to investigate the impact of interest rates on the
savings and deposits of scheduled banks (that are listed with the State Bank of
Pakistan) and other financial institutions in Pakistan, from 2002 to 2016, Raza, Hasan,
and Hena, Samreen and Saeed, Atiya (Raza et al., 2017) have found that there is a
strong correlation between interest rate and consumers’ savings and deposits. It highly
states that higher interest rates lead to greater levels of savings and deposits. Similarly,
this correlation was also stated by previous research of Lawrence H.
Summers (Summers, 1982) about tax policies, the rate of return, and savings. In this
study, three distinct empirical methodologies are employed to investigate how
alterations in the rate of return (an important indicator for interest rate) impact the
amount of capital accumulation. The outcomes of all three techniques, despite being
based on different sets of simplifying assumptions, are quite similar. This finding
implies that the conclusion regarding the significant and substantial influence of the
rate of return on savings is robust and reliable.
H8: Therefore, we assume that the case is the same in Vietnam. That means when the
interest rate is high by the impact of inflation, the return on savings increases;
consumers' preferences move from spendings to savings and as the result,
consumption will fall significantly.

Impact of interest rate on consumption through borrowing costs:

According to the study of Roman Kozlov published on 11 January 2023 (Kozlov,
2023) which is based on two main macroeconomic theories: The Keynesian
Consumption Function (Keynes, 1937) and The Permanent Income
Hypothesis (Friedman, 2018) (both simultaneously state that disposable income is
one variable that drives the consumer spending), a decrease in interest rates can make
it easier for individuals to borrow money, thereby increasing their capacity for
consumption. Cheaper access to borrowed funds may also result in individuals
becoming more inclined to take on debt to fund their expenses. Formerly, credit was
mainly utilized to finance major purchases like homes or vehicles. However, with the
widespread availability of credit in several countries, people can now borrow money
for various purposes, including financing education, medical bills, and vacations. As a
result, credit has grown into a crucial element of modern economies, and it is likely
that its significance will continue to expand in the future. This study was highly rated
by other experts because it has synthesized and solved the problems of predecessors’
studies on this topic such as the study of (Barba and Pivetti, 2008); the study
of (Christen and Morgan, 2005)or the study of (Wolff, 2011), etc.
H9: In this case, the assumption we want to propose is: In Vietnam, the higher interest
rate, the higher borrowing cost, and the lower consumption

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 2.3. Research gap
In a globalization world, as economies are highly connected, a war or a recession in a
corner of the world may affect the entire global economy. The uncertainty nowadays,
usually, occur and once it happens economies around the world are affected
profoundly. Therefore, understanding the impact of inflation on consumption is
important for both governments and corporations. Our work has synthesized previous
research and shows an overview of the topic, both practical and theoretical. Through
analysis, our study has revealed a research gap, specifically:
1. About the study area: most of the studies focus on developed countries, so
cannot give an universal truth about the economies around the world. Because
of that shortage, there is a need for research that focuses on emerging
economies, developing countries over a long period of time to figure out the
difference. As far as we know, there is no research on this topic in Vietnam.
2. About research factors: after synthesizing documents about the impact of
inflation on consumption habits in Vietnam, we realize that previous studies
have not done much on the overall impact of inflation. Because each channel
will influence consumption in different ways. Especially, in a complicated
modern economy in which contains many sectors and channels, the correlation
between inflation and consumption is much more difficult to understand.

3. Methodology and research design

3.1 Research implements process
Step 1: Identify research problems: Identify and select appropriate research topics to
build a complete study, specifically the topic of the study is on the impact of inflation
on consumption habits in Vietnam.
Step 2: Refer to previous studies: Conduct research on previous studies, concepts,
theories as well as assessments and findings on inflation factors affecting consumers'
decision to purchase goods and services in Hanoi.
Step 3: Development of research hypotheses and building research models: Formulate
research hypotheses and propose research models, ensuring research results have
practical significance.
Step 4: Research design: identify research questions, search for secondary data through
reputable information channels such as: World Bank, General Statistics Office,
Ministry of Finance... to answer research questions.

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Step 5: Data collection: Collect data through reputable and suitable information
channels for research subjects. The main respondents were identified as consumers
aged 22-60 in Vietnam.
Step 6: Data analysis: The data obtained will be aggregated, encoded and entered to
conduct statistical analysis techniques.
Step 7: Conclusion and report: Discuss, write reports to answer research questions, and
propose solutions and recommendations. At the same time, determine the meaning,
contribution, limitations and future research directions of the topic and field of study.

3.1.1. Research question

● What are the factors affecting Vietnamese's tendency of changing their habit of
spending or their habit of spending to saving and at what level can they drive
customers?
● How do such global crises like the subprime crisis, European debt crisis, Covid-
19,... affect the Vietnamese’ economy and inflation, resulting in a change in
consumption?
3.1.2. Research design
Study design
Based on an analysis of the influence of inflation on consumer behavior, the study
proposed using a combination of qualitative and quantitative research methods.
• Qualitative research: is considered as a preliminary research phase, carried out
through discussions of team members, experts with the purpose of building and
perfecting research models and scales of research concepts. From the proposed
research model and draft scale, the authors conduct qualitative research and adjust the
model to suit the topic chosen by the group.
• Quantitative research: at the formal research stage, the team uses quantitative
methods through secondary data. After screening the data, the results will be fed into
Excel and SPSS software to be encoded and processed, synthesized, analyzed and
concluded for the topic, proposing solutions that can be applied in practice.
The collected data includes information on the effect of inflation on consumers'
purchasing decisions.
3.1.3. Data collection
Secondary data: Find out based on available materials, websites, books, newspapers,
academic journals, specialized journals, trade journals, research, textbooks,
government publications, reports of conferences, companies and organizations related
to the given topic. From there, the authors built the theoretical basis of the topic,
offering a research model.
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Primary data: The authors conduct discussions and surveys from subjects suitable to
the topic and experts in the field.
Typical data sources:
The World Bank: conduct from 1995-2021 (“World Bank Open Data,” n.d.) \
General Statistics Office: conduct from 1990-2021 (“PX Web,” n.d.)
The State Bank provides information forecasting the inflation expectation with our
nation (Tuyet -, 2023)
3.1.4. Data processing
- With qualitative data: using data aggregation methods.
- With quantitative data: use excel/google sheet software and SPSS software to
encode, enter and analyze data.
3.1.5. Moral hazard issues
Ethics is a paramount issue in all aspects of life in general, especially in the conduct of
scientific research. The research team is committed to strictly adhering to ethical
standards in conducting research activities, ensuring that the research does not harm
people and the community, including respecting and protecting the rights and interests
of participants (privacy, right to identity, self-determination, right to fair treatment),
ensuring the quality and legitimacy of research, disclosing research results clearly and
transparently to the public.

3.2. Conceptual framework

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4. Conclusion
As mentioned before, we presented our proposed research ideas and processes to
conduct a synthesis of resource data on the impact of inflation on consumers
purchasing behaviors in Vietnam. The consequences of inflation play an important role
in both national economy general and commodity markets, through this research, we
hope to make both theoretical and practical contributions. In addition, we expect that
our study will provide a fundamental background for future studies on the necessary
policies proposed during inflationary periods to optimize profits for businesses as well
as our national economy, to realize sustainable economic growth in Hanoi and
Vietnam.

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 ĐÁNH GIÁ THÀNH VIÊN

Nghiêm Quang Minh (Leader) - Introduction

- Theory of inflation
- Introduction of inflation expectation
- Research gap
Nguyễn Xuân Thành - Economic uncertainty (variable)
- Editor
- Research aim
- Research objectives
Nguyễn Trương Hoài Nam - The reality of consumption
- Type of spending (variable)
Chu Huy Hoàng - Cause and situation of inflation
- Demographic (variable)
Trần Trung Hiếu - Debt burden (variable)
- Return on saving (variable)
- Borrowing cost ( variable)
Lê Mạnh Hùng - Methodology and research design
- Conclusion
- Research importance
- Research subject

26