A major political concern in South Vietnam was that an escalating Vietnamese war budget would cause a rampant inflationary condition promoting serious discontentment among the people. Under the worst scenario, they might rise up against the government, or, at best, they would be ripe for political manipulation by the enemy. Thus, economic policy stressed inflation control rather than long-run development. No one knew exactly what rate of inflation would be politically destabilizing, but it was thought that a rate of around 30 percent would be safe. Hyperinflation was to be avoided.

The history of inflation in South Vietnam is usefully separated into two distinct periods: an early period beginning with the founding of the republic and extending through 1964, and a late period lasting until the end of the war. The dividing line between these two periods is, just coincidentally, about the halfway mark in the political life of the Republic of Vietnam. The real divide, of course, is marked by the significant escalation of the war in South Vietnam in early 1965, when U.S. combat troops were introduced on a large scale. In the early period, the rate of inflation was 4.5 percent on average. It hardly seems to have been a problem. In the late period it varied between 16 and 60 percent and was a major concern of Vietnamese officials and U.S. advisors.